Sam has a financial obligation that requires him to pay $1,700 in one year; $1,300 in 2 ½ years and a final payment of $2,000 in 3 years. If Sam wishes to pay off all his obligations in 18 months, given an interest rate of 6.7% compounded quarterly. Using the financial functions on the calculator, determine the lump sum payment needed to fulfill his obligations in 18 months.
A) $4,784.14
B) $4,884.26
C) $4,916.54
D) $5,219.23
E) $5,424.86

Question

Quizplus · Accepted Answer

The correct answer is A because the lump sum payment needed to fulfill Sam's obligations in 18 months is $4,784.14. This can be calculated using the PV function on a financial calculator, which takes into account the present value of the future payments, the interest rate, and the number of compounding periods.

Sam Has a Financial Obligation That Requires Him to Pay