Q:
Two payments of $10,000 each must be made one year and four years from now. If money can earn 9% compounded monthly, what single payment two years from now would be equivalent to the two scheduled payments?
Answer & Explanation
Answer: A) 19296
Explanation: The single equivalent payment will be PV + FV.
FV = Future value of $10,000, 12 months later
$10,000 *(1.0075)/12
$10,938.07
PV= Present value of $10,000, 24 months earlier
$10,000/(1.0075)24
$8358.31
The equivalent single payment is
$10,938.07 + $8358.31 = $19,296.38
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