A payment of $17,000 is due in 1 year and $11,000 is due in 2 years. What two equal payments, one in 3 years and one in 4 years would replace these original payments? Assume that money earns 3.25% compounded quarterly. Use the focal date in 4 years.

A payment of $17,000 is due in 1 year and $11,000 is due in 2 years. What two equal payments, one in 3 years and one in 4 years would replace these original payments? Assume that money earns 3.25% compounded quarterly. Use the focal date in 4 years.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter12: Current Liabilities

Section: Chapter Questions

Problem 5Q: If Bergen Air Systems takes out a $100,000 loan, with eight equal principal payments due over the...

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

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A payment of $17,000 is due in 1 year and $11,000 is due in 2 years. What two equal
payments, one in 3 years and one in 4 years would replace these original payments?
Assume that money earns 3.25% compounded quarterly. Use the focal date in 4 years.
Round to the nearest cent

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