Question

Need help Yolanda is due to make a payment of a 1000 now. instead she negotiated to make two equal payments one year and two years from now . Determine the size of equal payments if money is worth 8% compounded quarterly. Use now as the focal date

Answer 1

Ok I have an answer ....
But I used the TMV Solve is that alright?

Answer 2

or do you need to use an equation?

Answer 3

tvm

Answer 4

its a present value problem

\[PV = P(v +v^2) = 1000\]
\[P = \frac{1000}{v+v^2}\]
where
\[v = \frac{1}{1+i} = \frac{1}{1.02^4}\]

Answer 5

@dumbcow hmmm I was thinking of approaching it diff
But either way do you guys know how to work it out that interest is compounded quarterly and payment annualy ... still tryna figure out this TVM solver

Answer 6

@wahahaha , you have to adjust the interest to annual
annual effective interest is (1.02)^4 - 1

Answer 7

ohhh dang it ... I shld have remembered abt AER

Answer 8

this is what I got so far. Because I going past the focal date I did FV =

x(1+ 0.08/4) expoent -4x1 and 2nd payment is x(1+0.08/4) exponent -4x2= x(1.02 )expnant -8 and -4 x1 x(1.02) exponent -4 i am lost after that

Answer 9

Hey its hard to follow what u r saying ...
Hey maybe you wanna use the drawing option

Answer 10

gimme a minute

Answer 11

\(x(1+\frac{.08}{4})^{-4*1}+x(1+\frac{.08}{4})^{-4*2}=x(1.02)^{-8}+x(1.02)^{-4}\)

Is that what u r tryna say?

Answer 12

yes

Answer 13

that is how my professor showed me but i lost him , after that step

Answer 14

thats what i showed, sorry my notation is different
here is a reference for my notation:
https://en.wikipedia.org/wiki/Present_value#Present_value_of_a_lump_sum

Answer 15

if my payments go past the focal date how can they be present value?

Answer 16

Ok i just use TVM solver and got equal payments of $562.62 ...

Answer 17

@ray_sihota ,

factor out x, then divide

\[x = \frac{1000}{1.02^{-4} + 1.02^{-8}}\]

Answer 18

no the payments are made in the future, but the original 1000 is in the present, thus the present value of all future payments

Answer 19

Ya we have a PV of 1000 bucks
which has an interest of 8% compounded annually
so all u r trying to do is find the PMT

I entered it into TVM as follows
N=2
I/Y=Effective Annual Rate = 8.24
PV=1000
Then computer Pmt and your answer will be 562.62

Answer 20

yep ^

Answer 21

@dumbcow Do you mind explaining the ray's method
I only study using TVM never learn abt equations unfortunately

Answer 22

got it thank you so much , this explanation makes so much sense.

Answer 23

:)