A Loan Contract Called for a Payment After Two Years

question 182

Short Answer

A loan contract called for a payment after two years of $1,500 plus interest (on this $1,500 only) at 8% compounded quarterly, and a second payment after four years of $2,500 plus interest (on this $2,500) at 8% compounded quarterly. What would you pay to purchase the contract 18 months after the contract date if you require a return of 10.5% compounded semi-annually?

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Definitions:

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