What equal payments in 3 years and 5 years would replace payments of $40,000 and $97,500...

What equal payments in 3 years and 5 years would replace payments of $40,000 and $97,500 in 6 years and 9 years, respectively? Assume money can earn 3.66% compounded monthly. Use 9 years as the focal date.

Expert Solution

Payment in 3rd year shall be equivalent to payment in 6th year. We need to present value 6th year payment.

Payment in 3rd year = 40,000 * PVIF (Monthly rate, Number of months )

= 40,000 * PVIF (3.66%/12, 3 * 12 )

= 40,000 * PVIF (0.305%, 36)

= 40,000 * [ 1/1.00305]³⁶

= 40000 * 0.8962

= $ 35,846.52

Payment in 6th year shall be equivalent to payment in 9th year. We need to present value 9th year payment.

Payment in 3rd year = 97500 * PVIF (Monthly rate, Number of months )

= 97500 * PVIF (3.66%/12, 3 * 12 )

= 97500 * PVIF (0.305%, 36)

= 97500 * [ 1/1.00305]³⁶

= 97500 * 0.8962

= $ 97375.89

jeff jeffy answered 2 years ago

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