Compund Interest

[mom1234]

I don't even know where to begin with this question. I appreciate any help I can get.

A two-payment stream consisting of $1750 due today and $2900 due in 18 months is to be replaced by an economically equivalent stream comprised of an undetermined payment due in 9 months and a payment of $3000 due in 19 months. Calculate the unknown replacement payment if money is worth 9% compounded monthly.

 

[JeffM]

I don't even know where to begin with this question. I appreciate any help I can get.

A two-payment stream consisting of $1750 due today and $2900 due in 18 months is to be replaced by an economically equivalent stream comprised of an undetermined payment due in 9 months and a payment of $3000 due in 19 months. Calculate the unknown replacement payment if money is worth 9% compounded monthly.

You can sensibly compare present values (or future values as of the same date). Does that make sense?

So the question involves two payment streams with an economically equivalent value, by which the problem means equal present values.

Your equation is: present value of one stream = present value of other stream.

What is the present value of the stream with 1750 due today?

The present value of the other stream involves an unknown so put x in to stand for the unknown. What is the expression for that present value?

Equate and solve