Question

Two debt payments of $2000 each are due now and nine months from now. If money is worth 8%, what single payment six months from now is required to settle the debt?

Answer 1

The single payment six months from now is required to settle the debt will be $4042.

How to calculate the amount?

The interest rate monthly will be 8/1200.

The number of time period given is 6 months.

Therefore, the future value will be:

= 2000(1 - 8/1200)^6

= 2081.35

The present value will be:

= 2000(1 - 8/1200)^3

= 1960.53

Therefore, the single payment will be:

= 2081.35 + 1960.53

= 4042

In conclusion, the correct amount is $4042.

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