Compound Interest

Question

A financial agreement requires the payment of $1200 in 9 months, $1400 in 18 months, and $1600 in 30 months. When would an alternative single payment of $4000 have to be made if money is worth 7% compounded quarterly?

Answer 1

The partial payments amount to $42,000.

 

42000 = 4000(1 + 0.07/4)^4t       divide both sides by 4000

10.5 = (1 + 0.175)^4t                   combine

10.5 = 1.175^4t                            take natural log of both sides

ln 10.5 = 4t ln 1.175                   calculate

2.35137526 ≈ 4t(0.161268148) divide both sides by right coefficient

14.58065312 ≈ 4t                      divide both sides by 4

3.64513279 ≈ t

 

It would take 43.74 months.