Arithmetic Ability
Compound Interest

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Q.

Two payments of $10,000 each must be made one year and four years from now. If money can earn 9% compounded monthly, what single payment two years from now would be equivalent to the two scheduled payments?

View Answer

Correct choice: A

Explanation:

The single equivalent payment will be PV + FV. FV = Future value of $10,000, 12 months later $10,000 *(1.0075)/12 $10,938.07 PV= Present value of $10,000, 24 months earlier $10,000/(1.0075) 24 $8358.31 The equivalent single payment is $10,938.07 + $8358.31 = $19,296.38
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