Asked by Sarah Bobbitt on Apr 26, 2024
Verified
Patrice defaulted on payments of $1,000 due one year ago and $1,500 due six months ago. A Small Claims Court orders her to make three payments-$800 one month from now, $900 four months from now, and a third payment seven months from now. The third payment is to be determined so that the creditor will end up in the same economic position as if the original payments had been made on time. The court set the fair rate of return at 4.2% compounded monthly. What should the third payment be?
Small Claims Court
A court that deals with minor legal disputes involving small monetary amounts.
Compounded Monthly
This is the calculation of interest on an investment or savings where the interest earned each month is added to the principal, thereby increasing the amount on which future interest is calculated.
Fair Rate
A reasonable, equitable interest rate or charge for a loan or service, ensuring fairness to both the provider and the consumer.
- Implement the time value of money theory to appraise payment sequences and outcomes of investments.
- Establish the monetary equivalency of various payment arrangements under different rates of interest.
Verified Answer
KW
Learning Objectives
- Implement the time value of money theory to appraise payment sequences and outcomes of investments.
- Establish the monetary equivalency of various payment arrangements under different rates of interest.