The Principal Plus Interest at 10% Compounded Quarterly on a $15,000

question 229

Short Answer

The principal plus interest at 10% compounded quarterly on a $15,000 loan made 2½ years ago is due in two years. The debtor is proposing to settle the debt by a payment of $5,000 today and a second payment in one year that will place the lender in an equivalent financial position, given that money can now earn only 6% compounded semi-annually.
a) What should be the amount of the second payment?
b) Demonstrate that the lender will be in the same financial position 2 years from now with either repayment alternative.

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Definitions:

Reason

The power of the mind to think, understand, and form judgments logically.

Chosen Alternative

The option selected among several possibilities in a decision-making process, often considered the most suitable or preferred.

Counterargument

A collection of reasons or an assertion presented to counter an idea or theory proposed in a different argument.

Complex Conversation

An in-depth discussion involving multiple nuanced topics or viewpoints, often requiring careful consideration and understanding.