Question

Lionel was supposed to pay Sophie $5,200 6 months ago and $780 in 5 months. If he wants to repay this amount with two equivalent payments of $2,600 today and the balance amount in 2 months, calculate the balance amount. Assume interest is 5.60% p.a. and the agreed focal date is 2 months from now.

Answer 1

Payment due in 6 month = 5200

Number of months = 6

Future Value under simple interest = P*(1+(interest rate*time/12))

5200= P*(1+(5.6%*6/12))

5200= P* 1.028

Present value =5200/1.028= 5058.365759

Payment due in 5 month = 780

Number of months = 5

Future Value under simple interest = P*(1+(interest rate*time/12))

780= P*(1+(5.6%*5/12))

780= P* 1.023333333

Present value =780/1.023333333= 762.2149837

Total present value or value if payments now = 5058.36575875486+762.2149837

P= 5820.580742

payment made now = 2600

Balance payment today or present value today = 3220.580742

Number of months of second payment (n) 2

Future Value under simple interest = P*(1+(interest rate*time/12))

3220.580742*(1+(5.6%*2/12))

3250.639496

So payment made 2 months from now is $3,250.64