Question

A friend wants to borrow money from you. He states that he will pay you $3,900 every 6 months for 7 years with the first payment exactly 7 years and six months from today. The interest rate is an APR of 6.2 percent with semiannual compounding. What is the value of the payments today

Answer 1

Answer:

Amount paid today will be equal to $6165.163

Explanation:

We have given initial payment $P=3900$ $

Rate of interest r = 6.2%

Time is given 7 years and 6 months

As interest is given semiannually

So total time period = 2×7+1 = 15 period

Rate of interest $r=\frac{6.2}{2}=3.1$ %

Amount after 7 years 6 months will be equal to $A=P(1+\frac{r}{100})^n$

$A=3900(1+\frac{3.1}{100})^{15}=6165.163$ $

So amount paid today will be equal to $6165.163