Scheduled Payments of $3,000 Due Today and $2,000 Due in 15

question 179

Short Answer

Scheduled payments of $3,000 due today and $2,000 due in 15 months are to be replaced by two payments-$1,500 due in 15 months and a second payment of undetermined size due in 24 months. What must the second payment be for the two streams to be economically equivalent? Assume that money can earn 6% compounded quarterly.

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Definitions:

Attachment

(1) In the context of secured transactions, the process by which a security interest in the property of another becomes enforceable. (2) In the context of judicial liens, a court-ordered seizure and taking into custody of property prior to the securing of a judgment for a past-due debt.

Unsecured Creditor

A creditor who lends money without obtaining specified assets as collateral, thus facing higher risk in case of borrower's bankruptcy.

Family Home

A primary residence where a family lives and conducts their daily activities.

Security Interest

A legal claim or lien on collateral that has been pledged, usually to secure repayment of a loan.