Question

2) Gertrude has borrowed $6000 from her bank to buy a new machine for her business. She has promised to make payments of $2000 after two years, $2500 after three years, and a final payment after five years. What is the size of the last payment, if interest is 8% compounded semiannually?

*Please use financial calculator method and show the values being entered for PY, CY, I, N, PMT, FV, PV along with your final answer*

Answer 1

	Present value of 2000
	Put in calculator
	FV		2000
	PMT		0
	I	8%/2	4%
	N	2*2	4
	Compute PV	($1,709.61)
	Present value of 2500
	Put in calculator
	FV		2500
	PMT		0
	I	8%/2	4%
	N	3*2	6
	Compute PV	($1,975.79)
	Total amount paid =	$3,685.39
	1709.61+1975.79
	Amount left =	$1,314.61
	5000-3685.39
	Future value of pending amount -
	put in calculator
	PV		($1,314.61)
	PMT		0
	I		4%
	N	5*2	10
	Compute FV	$1,945.94
	ans =		$1,945.94