Question

Portia was supposed to pay Jenila $3,000 2 months ago and $4,500 in 6 months. Portia missed the first payment and wants to replace the original agreement with 3 equal payments: the first payment due today, the second payment in 3 months and the last payment in 8 months. Calculate the value of all 3 payments using today as the focal date. Use a simple interest rate of 3%.

Answer 1

To calculate the value of each payment, we can use the present value formula. The present value formula is given by: PV = FV / (1 + r)^n. Given that the interest rate is 3%, we can calculate the present value of the first payment as $3000. Similarly, the present values of the second and third payments are $4281.63 and $3876.48, respectively.

Step-by-step explanation:

To calculate the value of each payment, we can use the present value formula. The present value formula is given by:

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.

Given that the interest rate is 3%, we can calculate the present value of the first payment:

PV1 = 3000 / (1 + 0.03)^0
PV1 = 3000

Similarly, we can calculate the present value of the second payment:

PV2 = 4500 / (1 + 0.03)^3
PV2 = 4281.63

Finally, we can calculate the present value of the third payment:

PV3 = 4500 / (1 + 0.03)^8
PV3 = 3876.48

Therefore, the values of the three payments are $3000, $4281.63, and $3876.48.