# Finding equal size payments

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• Jan 25th 2010, 07:51 PM
hanak
Finding equal size payments
Jon owes three debts:
$500 in one year plus interest at 6% compounded semi-annually,$2000 due in two years,
$1000 due in three years plus interest at 5% compounded monthly He wishes to discharge these debts by paying$500 now and two equal but unknown payments in one and two years respectively. Find the size of the equal payments if money is, at present, worth 12% compounded quarterly, using a focal date of 2 years.
• Jan 25th 2010, 08:37 PM
TKHunny
It seems odd at first that you did not give us the interest crediting methodology for the \$2,000. This difficulty is solved, however, by calculating at the time of that cash flow - as instructed by the very end of the problem statement.

Having said that, just build it!

P is the size of the two equal payments at years 1 and 2.

Here's the debts:

$500 \cdot (1 + 0.06/2)^{1*2} + 2000 + 1000 \cdot (1 + 0.05/12)^{-1*12}$

Here's the discharging payments:

$500 \cdot (1 + 0.12/4)^{2*4} + P \cdot (1 + 0.12/4)^{1*4} + P$

Now what?

Note: You simply MUST learn these "Basic Principles". It WILL save you.