Answer to Question #311539 in Financial Math for chris

Question

abongile, the manager of a construction company is renovating a home and has expenses of R200 000,00 now and another R41 812,00 in six months time.as he finds it difficult to find the cash now, he proposes to settlle all the debt after six months with a single payment. the debt is subject to an interest rate of 9.5% per annum, compounded quarterly. what is the value of the payment that will settle his debt at the end of month six?

Answer 1

P_N= p₀$(1+\frac{r}{k})^n$^k

Where P_N= Amount after ‘n’ years

             P₀= Principal

            r=Annual interest rate

            k= no. of compounds in a year

           n= Period in years

r =9.5% p.a Compounded Quarterly

Therefore, k=4

n=$\frac{6}{12}$

Total Debt is:

R2000 000 00+ R41 812 00

=R241812 00

P_N=R241812 00$(1+\frac{0.095}{4})^2$

P_N=R241812 00(1+0.02375)$^2$

P_N=R241812 00(1.02375)$^2$

P_N=R25 343 447