Question

A payment stream consists of three payments - $1,200 due today, $1,700 due 70 days from today, and $2,200 due 230 days from Today.
What single payment, 60 days from today, is economically equivalent to the payment stream if money can be invested at a rate of 3.7%?

I can't seem to figure out how to add the final answers, is it Future value plus future value?

Answer 1

Answer:

The three payments are:

(i) $1,200 due today,

(ii) $1,700 due 70 days from today, and

(ii) $2,200 due 230 days from Today.

60 day from today:

(i) Future value of (i) will be = 1200 + 1200 * 60/365 * 3.7% = $1,207.30

(ii)

After 60 days days remaining for 2nd payment will be = 70 - 60 = 10 Days

Value on 60 days from today will be =1700 / (1 + 10/365*3.7%) = $1,698.28

(iii)

After 60 days days remaining for 3rd payment will be = 230 - 60 = 170 Days

Value on 60 days from today will be =2200 / (1 + 170/365*3.7%) = $2,162.73

As such:

Single payment, 60 days from today, which is equivalent to the payment stream:

= $1,207.30 + $1,698.28 + $2,162.73

= $5,068.31

Single payment, 60 days from today, which is equivalent to the payment stream = $5,068.31