A scheduled payment of $8,000 due in one year is to be replaced with two payments:...

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.

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Expert Solution

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	0.8960797052218052P


	0.965689629820556P+0.8960797052218052*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

jeff jeffy answered 1 year ago

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