A person owes $2400 at the end of 1 year(s) and $7850 at the end of 6 years. Due to financial difficulty, the person is allowed by the lender to settle both debts with a single payment at the end of 4 years using 17.5% compounded monthly for the settlement. Determine the amount required to settle both debts at the end of 4 years.
Present Value of Payment at year end 1 = 2400 / (1+r)^n
r = 0.175 / 12 = 0.01458333333
n = 1 year *12 = 12 months
= 2400 / (1+0.01458333333)^12
= 2017.24457664
Present Value of Payment at year end 6 = 7850/ (1+r)^n
r = 0.175 / 12 = 0.01458333333
n = 6 year *12 = 72 months
= 7850 / (1+0.01458333333)^72
= 2767.92004085
Total Present Value = 2017.24457664 + 2767.92004085 = 4785.16461749
Single Peyment at the end of year 4 = 4785.16461749 * (1+r)^n
n = 4 years * 12 = 48
= 4785.16461749 * (1+0.01458333333)^48
= $9587.55
NOTE: The answer to your question has been given below/above. If there is any query regarding the answer, please ask in the comment section. If you find the answer helpful, do upvote. Help us help you.
Get Answers For Free
Most questions answered within 1 hours.