Question

A person is to receive nine payments in amounts of $480 two thirds of the way through year one, $500 two thirds of the way through year 2, $600 two thirds of the way through years three through six, and $900 two thirds of the way through years seven through nine. If the person considers that places exist to invest money with equivalent risk at 6% annual interest, calculate the time zero lump sum settlement “P”, and the end of year nine lump sum settlement “F”, that would be equivalent to receiving period payments. Next, determine the nine equal payments “A” at years one through nine that would be equivalent to the stated payments.

Answer 1

The time zero lump sum settlement amount "P" is $4,444.12, lump sum settlement amount at the end of year nine "F" is $ 7,508.24, and the nine equal payment amount "A" is $653.38.

The calculations are shown below: