Question

Assume you borrow $10,000 today and promise to repay the loan in two payments, one in year 2 and the other in year 4, with the one in year 4 being only half as large as the one in year 2. At an interest rate of 10% per year, the size of the payment in year 4 will be closest to:

Answer 1

$4,281.19

Step-by-step explanation:

The standard notation equation is P = F(P/F, i, n) where the value of the factor is seen in the compound interest factor table.

Let the amount deposited in year 4 be A, we calculate the value of A as follows

10,000 = 2A(P/F, 10%, 2) + A(P/F, 10%, 4)

10,000 = 2A(0.8263) + A(0.683)

2.3358A = 10,000

A = 10,000 / 2.3358

A = 4281.188457915917

A = $4,281.19.