Question

Mr. Barrow have loan payments of $400 due 95 days ago and $700 due today are to be repaid by a payment of $600 thirty days from today and the balance in 125 days. If money is worth 6% and the agreed focal date is 125 days from today, how much is Mr. Barrow’s final payment?

RATE 6%

Answer 1

First lets understand what question says:

It has given a Focal date: Due to the impact of time value of money, money payable has different values at different time in order to bring a comparibility between two a focal date is choosen sometimes referred to as comparison Date.

Loan =$400

Rate=0.06

LET THE FINAL PAYMENT BE X

Step1

The most important part is number of days

FOCAL DATE=125DAYS.

1^ST=400 DUE 95 DAYS AGO

THEREFORE TOTAL DAYS NOW=95+125=220DAYS

2^ND=700 DUE TODAY= 125DAYS

Now it says

600 DUE IN 30 DAYS FROM NOW

THEREFORE 125-30DAYS=95 DAYS

STEP2 FINAL PAYMENT WILL BE

400(1+ .06*220/365) + 700(1+.06*125/365) =600(1+.06*95/365) + X

414.5856354 + 714.3835616 = 609.369863 + X

X=1128.9692 – 609.3698

X=519.48

Hence the size of final payment will be $519.48

I hope the answer is clear you may ask any doubt please upvote it really helps. Thank you good luck.