Question

A debt of $2000 due in one year is to be repaid by a payment due two years from now and a final payment of $1000 three years from now. If the interest is at the rate of 4% compounded annually, then the payment due in two years is______ A) $1155.43. B) $1203.14. C) $1118.46. D) $1191.00. E) $1000.00.

Answer 1

The payment due in two years is $1118.46.

Step-by-step explanation:

To find the payment due in two years, we need to calculate the present value of the $1000 payment due in three years. We can use the formula for the present value of a future amount with compound interest:

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 years. Plugging in the values:

PV = $1000 / (1 + 0.04)^3 = $1000 / (1.04)^3 = $1000 / 1.125 = $888.89

Now, we can subtract the present value from the original debt to find the payment due in two years:

Payment due in two years = $2000 - $888.89 = $1111.11

Therefore, the correct answer is C) $1118.46.