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    volora's Avatar
    volora Posts: 22, Reputation: 1
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    #1

    Mar 23, 2010, 01:53 PM
    Annual payments
    I came out with this answer 3,586.87 and keep getting wrong. Please let me know what I'm doing wrong. Any help would be greatly appreciated.

    You borrowed some money at 8 percent per annum. You repay the loan by making three annual payments of $256 (first payment made at t = 1), followed by five annual payments of $425, followed by four annual payments of $796. How much did you borrow?
    ebaines's Avatar
    ebaines Posts: 12,131, Reputation: 1307
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    #2

    Mar 23, 2010, 02:28 PM

    I get $3431.19

    The discounted value of the payment P made in year N is P/(1.08^N). So the first payment's present vaue is $256/1.08 = $237.04, the second's is $256/1.08^2 = $219.48, etc. The last payment's present value is $796/(1.08^12) = $316.10. Sum up all twelve years and I get the above answer.
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