Question 942409: You owe Mike R3600 due in two years and R7000 due in five years (interest included). You both agree to replace debts with a single payment in four years using an interest rate of 13% per year, compounded half-yearly (every six months).
What is the size of the single payment that will repay your debt four years from now?
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! you have to pay 3600 in 2 year and you have to pay 7000 in 5 years.
interest included means that the payment includes the interest on the debt.
the semi-annual interest rate is 13% / 2 = 6.5% = .065
in order for the 3600 that was to be paid in 2 years to be paid in 4 years, there will be 2 years compound interest added to it which means there will be 4 half years added to it at a compound interest rate of 6.5% per half year.
in order for the 7000 that was to be paid in 5 years to be paid in 4 years, there will be 1 year compound interest deducted from it which mean there will be 2 half years deducted from it at a compound interest rate of 6.5% per half year.
3600 * 1.065^4 = 4631.278862
7000 / 1.065^2 = 6171.614979
add these up and you will pay 10802.89365 in 4 years.
if i understood your problem correctly, that's the way you would analyze it.
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