Question

You are thinking about buying a piece of art that costs $50,000. The art dealer is proposing the following? deal: He will lend you the? money, and you will repay the loan by making the same payment every two years for the next 10 years? (i.e., a total of 5 ?payments). If the interest rate is 7% per? year, how much will you have to pay every two? years?

Answer 1

Suppose payment of every 2 year is "x"
As per question,
Present Value of every 2 year's payment will be equal to cost of piece of art.
Year	Cash flows		Discount factor		Present Value
a	b		c=1.07^-a		b*c
2	x		0.873		0.873	x
4	x		0.763		0.763	x
6	x		0.666		0.666	x
8	x		0.582		0.582	x
10	x		0.508		0.508	x
	Total				3.393	x
	Now, according to question,
	Cost of piece of art		=	Present Value of every 2 years cash flow
	or,
	$       50,000		=	3.393	x
	or,
	x		=	$ 14,736.07
	Thus,
	Payment of every 2 years is			$ 14,736.07