Two payments of $5,000 60 days ago and $5,000 in 120 days are to be replaced by a payment now and $4,000 in 90 days. If interest is 3.2% annually, determine the amount to pay now, if the focal point is today.
A) $6,012.40
B) $6,018.50
C) $6,005.57
D) $6,003.20
E) $5,996.60

Question

Quizplus · Accepted Answer

To find the amount to pay now, calculate the present value of the original payments and the replacement payments using the given interest rate. The present value of the original payments is $5,000/(1+0.032*(60/365)) + $5,000/(1+0.032*(120/365)). The present value of the replacement payments is X + $4,000/(1+0.032*(90/365)). Equate the two present values and solve for X, which gives approximately $6,005.57.

Two Payments of $5,000 60 Days Ago and $5,000 in 120