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Math Help - Interest

  1. #1
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    Sep 2005
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    Interest

    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....
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  2. #2
    MHF Contributor
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    Solved in only 5 years

    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.
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