Question

2. Scheduled debt payments of $1500.00 due seven months ago, $1200.00 due two months ago, and $1800.00 due in five months are to be settled by two equal payments now and three months from now respectively. Determine the size of the equal replacement payments at 9% p.a. compounded monthly. (15 points)

Answer 1

Given that, Scheduled debt payments of $1500 due seven months ago, $1200 due two months ago, and $1800 due in five months are to be settled by two equal payments now and three months from now respectively

Interest rate = 9% compounded monthly,

so, first calculating value of all due payment in 5 months from now usinf formula

FV = PV*(1+r/n)^(N)

So, total debt payment required = 1500*(1+0.09/12)^12 + 1200*(1+0.09/12)^7 + 1800 = $4705.15

Calculated value of two equal payment X in 5 month from now

payment = X*(1+0.09/12)^5 + X*(1+0.09/12)^2 = 2.05X

equating 2 payments we get

2.05X = 4705.15

=> X = $2291.70

So, two equal payment are $2291.70 each