Michelle is reorganizing scheduled debt of $1,000 today and $2,000 due one year from now. It is to be settled by a payment of $1,500 three months from now and a final payment 18 months from now. If interest is 10% compounded quarterly, determine the size of the final payment.
A) $563.83
B) $1,063.83
C) $1,563.83
D) $2,563.83
E) $3,563.83

Question

Quizplus · Accepted Answer

The present value of the payments must equal the present value of the debts. Calculate the present value of the $1,500 payment and the final payment, and equate it to the present value of the $1,000 and $2,000 debts, considering the interest rate. Solving the equation gives the final payment as $1,563.83.

Michelle Is Reorganizing Scheduled Debt of $1,000 Today and $2,000