Three Payments of $2,000 (Originally Due Six Months Ago, Today

question 39

Short Answer

Three payments of $2,000 (originally due six months ago, today, and six months from now) have been renegotiated to two payments: $3,000 one month from now and a second payment due in four months. What must the second payment be for the replacement payments to be equivalent to the originally scheduled payments? Assume that money can earn an interest rate of 4%. Choose a focal date four months from now.

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Definitions:

Bank Reconciliation

The process of comparing and adjusting the bank statement balance with the book balance of a company to account for differences.

Petty Cash Account

A small fund kept on hand for incidental cash expenses, maintained through a system of documenting each withdrawal and replenishment.

Fund Replenishing

The process of restoring the balance of a fund to its original level or to a desired level after it has been depleted.

Fund Shortages

A situation where the available financial resources are insufficient to cover the expected or required expenses.