Question

1. Robin owes $4000 after 3 years and $4500 after 7 years. Robin is unable to meet her obligation after 3 years and by mutual agreement is allowed to pay off both notes with a single payment after 6 years. Find the size of Robin’s payment after 6 years if 8% quarterly is used in the settlement.

Answer 1

Robin owes $4000 after 3 years and $4500 after 7 years

As robin is unable to pay obligation after 3 years and will pay after 6 years.

Thus, calculation Obligation after 6 years:-

Future amount = Amount*(1+r)^n

where, r = Interest rate = 8%/4 =2%

n = no of years = (6yr - 3 yr)*4 =12

Future amount = $4000*(1+0.02)^12

= $5072.97

So, Obliagtion in 6th year = $5072.97

- Now, Calculating the Value of Obligation to be paid in 7 year at 6th year.

Present Amount = Amount/(1+r)^n

where, r = Interest rate = 8%/4 =2%

n = no of years = (7yr - 6 yr)*4 =4

Present Amount = $4500/(1+0.02)^4

= $4157.30

Thus, final settlement of Obligation in 6th year = $5072.97 + $4157.30

= 9230.27

answered by: anonymous