A payment stream consists of $1300 payable today and $1700 payable in six months. What is the equivalent value of the payment stream two months from now if money is worth 5.5%? (Round your answer to the nearest cent. Do not round your intermediate calculations.)
payment stream ... please help!!
- Thread starter nganin
- Start date
- Joined
- Apr 12, 2005
- Messages
- 11,339
Hopefully, your course materials defined "money is worth" for you. We'll need to know some compounding rules.
With annual, compounded monthly, it could be:
i = 0.055
j = 0.055/12 = 0.00458333333333333333333333333333
r = 1+j
\(\displaystyle 1300\cdot r^{2} + \frac{1700}{r^{4}}\)
With annual, compounded monthly, it could be:
i = 0.055
j = 0.055/12 = 0.00458333333333333333333333333333
r = 1+j
\(\displaystyle 1300\cdot r^{2} + \frac{1700}{r^{4}}\)
There is no mention of either monthly compounded or nominal rates (which is what tkhunny used). If that's all the problem really says I would assume it would just be:
i = 5.5%
\(\displaystyle v=\frac{1}{1+i}\)
\(\displaystyle 1300(1+i)^{2/12}+1700v^{4/12}\)
It's pretty bad wording though...