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Math Help - Finding equal size payments

  1. #1
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    Post 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.
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  2. #2
    MHF Contributor
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    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.
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