A contract was signed eight months ago requiring the payment of $13,000 plus interest at 8% after one year. What two equal payments made today and four months from today are equivalent to the original contract? Assume that money is now worth 5%. Use four months from today as the focal date.
A) $7020.00
B) $6961.98
C) $6446.28
D) $13,809.84
E) $7078.02

Question

Quizplus · Accepted Answer

The present value of the contract is calculated using the future value of $13,000 plus 8% interest, discounted at 5% to the focal date. The two equal payments are calculated such that their present values sum to the present value of the contract.

A Contract Was Signed Eight Months Ago Requiring the Payment