In: Finance
A scheduled payment of $8,000 due in one year is to be replaced with two payments: the first due in 7 months and the second due in 22 months. Calculate the size of the two payments if the second payment is to be twice as large as the first payment, and money can earn 6% compounded monthly.
Current | |||||
Month | Payment | PV factor @0.50%, 1/(1+0.50%)^t | Payment* PV factor | ||
12 | $ 8,000 | 0.94190534 | $7,535.24 | ||
Revised arrangement | |||||
With the revised arrangement, the PV should remain same | |||||
Month | Payment | PV factor @0.50%, 1/(1+0.50%)^t | Payment* PV factor | ||
7 | P | 0.96568963 | 0.965689629820556*P | ||
22 | 2*P | 0.896079705 | 0.896079705221805*2*P | ||
0.965689629820556*P+0.896079705221805*2*P= 7,535.24 | |||||
2.75784904026417*P | = 7,535.24 | ||||
P= | 7535.24/2.75784904026417 | ||||
P= | $ 2,732.29 | ||||
First Payment= | $ 2,732.29 | ||||
Second Payment= | $ 5,464.58 | ||||