Question

two scheduled debt payments of $712 each are due two months and nine months from now respectively. If interest at 6% is allowed, what single payment today is required to settle the two scheduled payments?

Answer 1

Calculation for first debt obligation which is due in 2 months:

Payment required = Face value / (1+rate)^(remaining months / 12months )

= 712 / 1.06^(2/12)

= ~ $ 705.12

Calculation for second debt obligation which is due in 9 months:

Payment required = Face value / (1+rate)^(remaining months / 12months )

= 712 / 1.06^(9/12)

= ~ $ 681.55

Adding both payment required = $ 705.12 + $ 681.55 = $ 1,386.67

The single payment of $ 1,386.67 would terminate both the debt obligations today.