Question

Jill borrows $29,000 from you today. She agrees to repay you in two equal amounts, the first to occur in 3 years from today and the other in 7 years from today. If the interest rate is 14.6% per annum compounding monthly, what will be the amount of each repayment?

Answer 1

Let the amount of each repayment be Y

r is computed as follows:

= 14.6% / 12

= 1.216666667% or 0.012166667

Present value = Future value / (1 + r)ⁿ

$ 29,000 = Y / (1 + 0.012166667) ^{3 x 12} + Y / (1 + 0.012166667) ^{7 x 12}

$ 29,000 = Y x 0.647033689 + Y x 0.362100745

$ 29,000 = Y x (0.647033689 + 0.362100745)

$ 29,000 = Y x 1.009134434

Y = $ 29,000 / 1.009134434

Y = $ 28,737.50 Approximately

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