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What three equal payments, one in 3 years, one in 5 years, and one in 6...

What three equal payments, one in 3 years, one in 5 years, and one in 6 years would replace one single payment of $20,000 due today at an interest rate of 5.22% compounding quarterly? Use 'today' as the focal date.

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Answer #1

Let the three Single payment in year 3, in year 5 and in year 6 be X respectively.

These 3 payments will replace 1 single payment of $20,000 due today

Calculating the Present Value of these three payment today which is the focal date:-

where, r = periodic Interest rate = 5.22%/4 = 1.305%

m = no of times compounding in ayear = 4

20,000 = X*2.36008155388

X = $8474.28

SO, the three Equal Payments be $8474.28

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