John wants to do Task A. Task A will take two years and $40,000. $15,000 is paid after the 1st year. Next, $25,000 is paid after 2 years from now. A friend Annie who works at the same company as John wants to make both payments on John's behalf. The condition is that John must make deposits every quarter in Annie's corporate savings account which pays 7.8% yearly interest that is compounded quarterly. Annie will only pay if John agrees to this. John will need to make a total of 9 payments with 1 being made immediately (before time passes). Then, John will make 1 payment every quarter (every 3 months) until Task A is finished in the next 2 years. This amounts to a total of 9 same-sized payments. What is each equal payment John makes? Include cash flow diagrams, complete workings, and assumptions.
John wants to do Task A. Task A will take two years and $40,000. $15,000 is paid after the 1st year. Next, $25,000 is paid after 2 years from now. A friend Annie who works at the same company as John wants to make both payments on John's behalf. The condition is that John must make deposits every quarter in Annie's corporate savings account which pays 7.8% yearly interest that is compounded quarterly. Annie will only pay if John agrees to this. John will need to make a total of 9 payments with 1 being made immediately (before time passes). Then, John will make 1 payment every quarter (every 3 months) until Task A is finished in the next 2 years. This amounts to a total of 9 same-sized payments. What is each equal payment John makes? Include cash flow diagrams, complete workings, and assumptions.
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 28P
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John wants to do Task A. Task A will take two years and $40,000. $15,000 is paid after the 1st year. Next, $25,000 is paid after 2 years from now. A friend Annie who works at the same company as John wants to make both payments on John's behalf. The condition is that John must make deposits every quarter in Annie's corporate savings account which pays 7.8% yearly interest that is compounded quarterly. Annie will only pay if John agrees to this. John will need to make a total of 9 payments with 1 being made immediately (before time passes). Then, John will make 1 payment every quarter (every 3 months) until Task A is finished in the next 2 years. This amounts to a total of 9 same-sized payments. What is each equal payment John makes?
Include cash flow diagrams, complete workings, and assumptions.
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