+598 Henrik, a Canadian hockey player, agreed to a contract whereby he was to receive $40,000 in 6 months, $60,000 in 8 months, and $100,000 in 18 months. The deal was renegotiated after 4 months when he received a payment of $30,000. He agreed to accept a payment of $172,000 at a later date. When should Henrik receive the payment is money is worth 6% compounded monthly?
Any help would be greatly appreciated.
Henrik, a Canadian hockey player, agreed to a contract whereby he was to receive $40,000 in 6 months, $60,000 in 8 months, and $100,000 in 18 months. The deal was renegotiated after 4 months when he received a payment of $30,000. He agreed to accept a payment of $172,000 at a later date. When should Henrik receive the payment is money is worth 6% compounded monthly?
This is how I would do it. First find the PV of the original contract of $40,000, $60,000 and $100,000.
If you did that, you should get $187,887.45.This is PV of original contract. But, 4 months into this, it was re-negotiated, which means that this amount has to be projected 4 months into the future. In other words, you have to find the FV of this amount for 4 months, which comes to $191,673.48. From this amount you have to subtract $30,000 that he received when the contract was re-negotiated. That leaves you with $161,673.48. So, the question becomes: how long does it take for this amount to grow into $172,000?. If you solve for n, you will see that it takes 12.41 months from the day that he received the first $30,000. So, in just over a year, he should receive his $172,000.
