Question 992679: Three debts, the first for $1000 due two months ago, the second for $1200 due in two months, and the third for $1400 due in four months, are to be paid by a single payment today. How much is the single payment if money is worth 8.25% p.a. and the focal date is today?
Answer: $3560.00
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! it depends on whether you are using simple interest or compound interest.
if you assume compound interest per month, then the answer is $3559.62 which rounds to $3560 whole numbers.
if you assume simple interest you'll get a different number.
since your number shown is 3560, i'm assuming you mean annual interest rate compounded monthly.
the formulas used would be:
pv = fv / (1+r)^n
fv = pv * (1+r)^n
n is the number of months.
r% is equal to 8.25% / 12 = .6875%
r is equal to .6875% / 100 = .006875
1+r is equal to 1.006875
since 1000 was due two months ago, you use the fv formula with n = 2.
since 1200 is due in two months, you use the pv formula with n = 2
since 1400 is due in 4 months, you use the pv formula iwth n = 4
add them up and you get the equivalent amount owed in the present time period.
you should get:
1000 * 1.006875^2 = 1013.797266
1200 / 1.006875^2 = 1183.66861
1400 / 1.006875^4 = 1362.152728
add them up and you get a total of 3559.618604 which rounds to 3560.
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