Payments of $2600, due 50 days ago, and $3100, due in 40 days, are to be replaced by $3000 today and another payment in 30 days. What must the second payment be if the payee is to end up in an equivalent financial position? Money now earns 8.25%. Use 30 days from now as the focal date.
The answer is $2719.68
I really don't know what to do here....
Jun 18th 2010, 03:43 PM
Solved in only 5 years :D
Lets find the value of the first set of payments, 30 days from now.
V = 2600(1+i)^(80/365) + 3100(1+i)^(-10/365)
We want him in the same position onder the alternate payments
3000(1+i)^(30/365) + P = V
Gives P = 2719.23, which i assume is rounding error, or due to the question writer assuming there are not exactly 365 days in a year.