Asked by Dayne Krachey on May 13, 2024
Verified
The scheduled payment stream consists of $5,000 due today and $10,000 due in five years. It is proposed to replace this stream by an economically equivalent stream comprised of three equal payments due one, three, and five years from now. Determine the size of each payment if money is worth 5% compounded annually.
Compounded Annually
A compound interest calculation made once per year.
Economic Equivalent
A theoretical figure representing the total cost or value of an asset, taking into account factors like inflation, interest rates, and opportunity cost.
Payment Stream
A series of payments made over time between parties in a financial transaction, such as annuities, mortgages, and dividends.
- Comprehend the fundamentals of the time value of money when determining equivalent payment flows and results of investments.
- Assess the economic consequences of postponing payments or modifying payment plans.
Verified Answer
SK
Learning Objectives
- Comprehend the fundamentals of the time value of money when determining equivalent payment flows and results of investments.
- Assess the economic consequences of postponing payments or modifying payment plans.