Question

Your friend was supposed to repay a loan with a loan payment of $1,000 due in 6 months and another loan payment of $1,500 due in 4 years. However, your friend agrees to make two payments that replace the originally scheduled payments. The first replacement payment of $1,250 is due in 2 years and the second replacement payment of $X is due in 3 years. Suppose the interest is 7% p.a. compounded quarterly and the focal date is 3 years from now (Year 3), your friend asks for your help to determine the size of the second replacement payment, $X. Answer the following question:
Your answer for $X at the focal date is ($BLANK)
. (Express in 2 decimals) Hint: Based on your answer in Q3 and the replacement payment in Q5, you will need to determine $X.

Note: to receive the full mark, you will use all the decimal places when performing calculations, round to 2 decimal places in your final answer, and there is no need to include other symbols such as $ and comma in your final answer.

Answer 1

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