Payments of $657 and $1000 due 2 years ago and today respectively are to be replaced by two $1000 payments. If the firs of the two $1000 payments is due in one year, and the interest rate is 3.6% compounded monthly, then to the nearest month, in how many months is the second $1000 payment due? Use 1 year from today as your focal date.
Payments of $657 and $1000 due 2 years ago and today respectively are to be replaced by two $1000 payments. If the firs of the two $1000 payments is due in one year, and the interest rate is 3.6% compounded monthly, then to the nearest month, in how many months is the second $1000 payment due? Use 1 year from today as your focal date.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Payments of $657 and $1000 due 2 years
ago and today respectively are to be
replaced by two $1000 payments. If the firs
of the two $1000 payments is due in one
year, and the interest rate is 3.6%
compounded monthly, then to the nearest
month, in how many months is the second
$1000 payment due? Use 1 year from today
as your focal date.
Expert Solution
Step 1
The concept of the time value of money states that money has an interest-earning capacity because of which money earned earlier is preferred over the same amount earned later. It is one of the most used concepts in finance.
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