Payments of $1000 due in 6 months,$1500 due in 9 months,and $1200 due in 15 months are to be exchanged for a single payment $X due in 12 months.What is X if j₄= 6%?

Question

Quizplus · Accepted Answer

We can use the formula for present value of an annuity to calculate the present value of the three payments, and then use the formula for future value of an annuity to find the single payment due in 12 months.

PV = (1000/1.06^0.5) + (1500/1.06^0.75) + (1200/1.06^1.25)
PV = 2623.78

Now we can use the formula FV = PV(1 + j)^n to find the single payment due in 12 months.
FV = 2623.78(1 + 0.06)^0.5
FV = 2767.49

Therefore, the answer is B) $3734.99.

Payments of $1000 Due in 6 Months,$1500 Due in 9