Jamal has two debts to pay. A $4500 due in 6 months from today and a $5000 due in 18 months from today.

Jamal has two debts to pay. A $4500 due in 6 months from today and a $5000 due in 18 months from today. Instead, he wants to make a single $9500 payment to settle both debts. Find the time he needs to make that payment. Assume interest rate to be 6% p.a. compounding quarterly

Expert Solution

Formula:

Future value= present value(1+r)^n

r= interest rate for the period.

n = number of periods.

The present value of 4500 and 5000

= [4500/(1.015)^2]+[5000/(1.015)^6]

=$8,940.69

Now, Future value of 9500 is equal to Present value of 4500 and 5000

9500 = $8,940.69*(1.015)^n

n= 4.0755 quarters.

n= 4.0755*3 = 12.23 months.

Answer: Time needed to make the payment = 12.23 months.

jeff jeffy answered 2 years ago

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