Question

A company has a debt payable in two installments of $ 250,000 each, at 3 and 6 months, respectively. You want to settle it in 3 successive bi-monthly payments; If the first is $ 100,000 and the second is $ 200,000, how much will the third be at a rate of 36% per year per month?

Answer 1

Solution :-

Interest Rate Per Month = 36% / 12 = 3%

Present Value of Obligation = [ $250,000 / (1 + 0.03)³ ] + [ $250,000 / (1 + 0.03)⁶ ]

= $228,785.41 + $209,371.06

= $438,156.48

Now Bi monthly Means in 2 months

Let the Value of 3rd Installment be X

= $438,156.48 = [ $100,000 / (1 + 0.03)² ] + [ $200,000 / (1 + 0.03)⁴ ] + [ X / (1 + 0.03)⁶ ]

= $438,156.48 = ( $100,000 * 0.943 ) + ( $200,000 * 0.888 ) + ( X * 0.837 )

= $438,156.48 = $94,259.59 + $177,697.41 +  ( X * 0.837 )

X = $198,450.87

Therefore the Value of 3rd installment = $198,450.87

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