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Catherine was supposed to make a payment of $4,250 in 3 years and another payment for $700 in 5 years to Loon Company as part
Catherine was supposed to make a payment of $4,250 in 3 years and another payment for $700 in 5 years to Loon Company as part of a payment plan. Instead, he is trying to reach an agreement with the company where he would pay an upfront amount now, and an amount of $1,000 in 4 years. Assume that money is worth 8.10% compounded quarterly.
a. Calculate the equivalent value of the $4,250 payment and the $700 payment today.
b. Calculate the upfront amount that he should pay under the alternative payment agreement so that the payments are equivalent.
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