Question

In: Finance

Tara's lawyer gave her the following two options to settle her invoice: (a) $2,000.00 in 1...

Tara's lawyer gave her the following two options to settle her invoice:
(a) $2,000.00 in 1 month and the balance of $2,100.00 in 3 months.
(b) Two equal payments, one in 37 days and the other in 5 months.
If money earned 2.50% p.a., what was the value of the equal payments in Option (b) such that it is equivalent to the payments in Option (a)? Use now as the focal date for this question.
Round to the nearest cent

Solutions

Expert Solution

We will take now as focal date

First we will find the Present value of payments under option (a)

Interest rate = r = 2.50% p. a

Present value of payments under option (a) = Payment in 1 month / (1+ r)Time to payment + Payment in 3 month / (1+ r)Time to payment = 2000 / (1+ 2.50%)1/12 + 2100 / (1+ 2.50%)3/12 = 2000 / (1.0250)1/12 + 2100 / (1.0250)3/12 = 2000 / 1.00205983 + 2100 / 1.00619224 = 1995.8888 + 2087.0763 = 4082.9651

Let A = Equal payment under option (b)

If Two options are equivalent

Present value of payments under option (a) = present value of Payment under option (b) = 4082.9651

A / (1+2.5%)37/365 + A / (1+2.5%)5/12 = 4082.9651

A / (1.025)37/365 + A / (1.025)5/12 = 4082.9651

A / 1.002506222 + A / 1.010341698 = 4082.9651

0.99750004A + 0.989764A = 4082.9651

1.987264A = 4082.9651

A = 4082.9651 / 1.987264 = 2054.5660 = 2054.57 ( Rounded to nearest cent)

Value of equal payments in option (b) = 2054.57


Related Solutions

Luis's lawyer gave her the following two options to settle her invoice: (a) $1,900.00 in 1...
Luis's lawyer gave her the following two options to settle her invoice: (a) $1,900.00 in 1 month and the balance of $2,800.00 in 5 months. (b) Two equal payments, one in 21 days and the other in 10 months. If money earned 5.30% p.a., what was the value of the equal payments in Option (b) such that it is equivalent to the payments in Option (a)? Use now as the focal date for this question.
Luis's lawyer gave her the following two options to settle her invoice: (a) $1,900.00 in 1...
Luis's lawyer gave her the following two options to settle her invoice: (a) $1,900.00 in 1 month and the balance of $2,800.00 in 5 months. (b) Two equal payments, one in 21 days and the other in 10 months. If money earned 5.30% p.a., what was the value of the equal payments in Option (b) such that it is equivalent to the payments in Option (a)? Use now as the focal date for this question.
1. Cameron gave the following gifts to her niece, Jill and nephew, Jack: $10,000 to Jill...
1. Cameron gave the following gifts to her niece, Jill and nephew, Jack: $10,000 to Jill and $10,000 to Jack in 2016 $15,000 to Jill and $20,000 to Jack in 2017 $25,000 to Jill and $25,000 to Jack in 2018 The annual exclusion for 2016 & 2017 is $14,000 and for 2018 is $15,000; the lifetime estate and gift tax basic exclusion amount is 2016 in $5,450,000; 2017 in $5,490,000, and 2018 in 11,180,000. Calculate the value of the gift...
John has two options for investing her $10,000 in savings:Bank 1 offers a Certificate of...
John has two options for investing her $10,000 in savings:Bank 1 offers a Certificate of Deposit with a 9.82% interest rate compounded annually.Bank 2 also offers a Certificate of Deposit with a 9.82% interest rate, but the compounded monthly.At over 15 years, how much more interest will John earn at Bank 2 than at Bank 1? Enter your answer rounded to the nearest dollar, without the "$".
Carla paid her lawyer the following amounts during 2017. 5000 for representation during a divorce ,...
Carla paid her lawyer the following amounts during 2017. 5000 for representation during a divorce , 800 to prepare her will and 3000 for assistance in obtaining alimony . How much in legal fees can Carla claim? 800 3000 5000 8000 2. Sofia filed her 2016 return on Nov 1 , 2017 she did not have a valid extension of time to file. In which of the following situation would she most likely qualify for a penalty exception? Sofia lost...
1. Grace is an lawyer who operates her business as a sole proprietorship. During 2017 she...
1. Grace is an lawyer who operates her business as a sole proprietorship. During 2017 she receives $150,000 for her professional services. Of the amount collected, $50,000 was for services provided in 2016. At the end of 2017 her A/R balance was $65,000, which represented amounts due for services rendered in 2017. In addition, Grace received a pre-payment of $45,000 at the end of 2017 for services to be rendered in 2018. a. Calculate Grace’s income using the cash basis...
1. Debbie is about to choose a career path. She has narrowed her options to two...
1. Debbie is about to choose a career path. She has narrowed her options to two alternatives. She can either become a marine biologist or a concert pianist. Debbie lives two periods. In the first, she gets an education. In the second, she works in the labor market. If Debbie becomes a marine biologist, she will spend $15,000 on education in the first period and earn $472,000 in the second period. If she becomes a concert pianist, she will spend...
Problem 1. Using the INVOICE table structure shown in table below do the following: INVOICE Attribute...
Problem 1. Using the INVOICE table structure shown in table below do the following: INVOICE Attribute Name Sample Value Sample Value Sample Value Sample Value Sample Value INV_NUM 211347 211347 211347 211348 211349 PROD_NUM AA-E3422QW QD-300932X RU-995748G AA-E3422QW GH-778345P SALE_DATE 15-Jan-2016 15-Jan-2016 15-Jan-2016 15-Jan-2016 16-Jan-2016 PROD_LABEL Rotary sander 0.25-in. drill bit Band saw Rotary sander Power drill VEND_CODE 211 211 309 211 157 VEND_NAME NeverFail, Inc. NeverFail, Inc. BeGood, Inc. NeverFail, Inc. ToughGo, Inc. QUANT_SOLD 1 8 1 2 1...
A person with epilepsy is brought to trial for assault. The lawyer argues that her client...
A person with epilepsy is brought to trial for assault. The lawyer argues that her client is not a criminal and that the assaults in question were psychomotor attacks. She points out that her client takes her medication faithfully, but that it does not help. The prosecution lawyer argues that the defendant has a long history of violent assault and must be locked up. Using information from your readings, what information would you provide the judge to help the person...
A math teacher gave her class two tests. 65% of the class passed the first test...
A math teacher gave her class two tests. 65% of the class passed the first test given that they also passed the second test. The percentages that the class passed the first test and second test are 70% and 50% respectively. i) What is the probability for those who passed both tests? ii) What is the probability for those who passed the second test given that they passed the first test? iii) What is the probability for those who passed...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT