Question

In: Finance

: After 4 years, you will pay 5.000 TL. Instead of this, you will pay 1000...

: After 4 years, you will pay 5.000 TL. Instead of this, you will pay 1000 TL now and the balance will be paid after 6  years. If the interest rate is %25, what is the amount paid after 6 years?

Solutions

Expert Solution

First we need to calculate the PV of 5000 paid after 4 years

We are given the following information:

Value of account at time 0 PV To be calculated
rate of interest r 25.00%
number of years n 4
Annual Compounding frequency 1
Future value FV $       5,000.00

We need to solve the following equation to arrive at the required FV:

To in total we need to pay 2048 now or pay 5000 after 4 years

If we pay 1000 now, the remaining amount will be 1048

Either we pay this now, or we pay the compounded amount at year 6

So at time 6 the payment will be calculated as follows:

We are given the following information:

Value of account at time 0 PV $       1,048.00
rate of interest r 25.00%
number of years n 6
Annual Compounding frequency 1
Future value FV To be calculated

We need to solve the following equation to arrive at the required FV

So at time 6 the payment will be $3997.80


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