Answer to Question #218895 in Economics for Franklin Gahum Jr

Question

CE construction strategies on attracting clients by giving them installment options on properties woth minimum contract of 10M. The installment scheme allows the client to pay P400,000 quarterly for the first 3 years and P850,000 semi-annually for 5 years starting on the 6th period. If the effective rate of interest is 4.55%. Find the contract price

Answer 1

Using the formula for present value of annuity the contract price is:

$P = 400,000*\frac{1 - (1 + 0.0455/4) ^{-12}} {0.0455} + 850,000*\frac{1 - (1 + 0.0455/2)^{-10}} {0.0455×1.0455^{1.5}} = 4,636,067.98.$