Debt Payments: Present Value Calculation
What are the debt payments that Greg owes and how can we calculate the present value of these payments?
Debt payments are amounts of money that are owed by an individual to pay off their debts. In this case, Greg owes two debt payments - a payment of $5744 that was due 13 months ago and a payment of $1704 due in 6 months. To calculate the present value of these payments, we can use the formula:
Present Value Calculation
Present Value = Future Value / (1 + r/n)^(n*t)
Where:
- Future Value is the amount of the debt payment
- r is the annual interest rate
- n is the number of compounding periods per year
- t is the time in years
In this case, the interest rate is 6.13% compounded semi-annually:
- r = 6.13%
- n = 2 (compounded semi-annually)
For the first debt payment ($5744):
- Future Value = $5744
- Time = 13 months = 13/12 years
- Present Value = $5744 / (1 + 0.0613/2)^(2*(13/12))
For the second debt payment ($1704):
- Future Value = $1704
- Time = 6 months = 6/12 years
- Present Value = $1704 / (1 + 0.0613/2)^(2*(6/12))
Calculating the present value for each debt payment:
- Present Value of the first debt payment is approximately $5439
- Present Value of the second debt payment is approximately $1616
Therefore, if Greg wants to make a payment now to cover both debts, he would need to pay a total of $5439 + $1616 = $7055.