Interest rate payments
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You have agreed to pay a creditor $5,000 one year hence, $4,000 two years hence, $¬3,000 three years hence, $2,000 four years hence, and a final payment of $1,000 five years from now. Because of budget considerations, you would like to make five equal annual payments to satisfy your contract.
If the agreed-upon interest rate is 5 percent per year, what will the annual payments be?
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First we calculate the present value of the cash flows. That ...
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