Example 2 (P.

102)
Solution:
Steps 1. Let X be the single payment on the 5th year.
2. Make a time diagram

Debts P5,000 C.D. P8,000

I I l l --------l ------->l <-------l------ l
I--------I----------I---------l---------l--------- l---------l--------l
I I I l l l l l
0 1 2 3 4 5 6 7
I
PAYMENTS X

3. Let the 5th year be the comparison date.

4. DEBTS
Accumulate P5,000 for 2 years (from year 3 to year 5) at 14%. M = 2

P = P5,000
j = 14%
m = 2
t = 2 years
n = 2(2) = 4
I = 14%
2
= 7%
F = P(1 + i)n
= P5,000(1 + 7%)4

Discount P8,000 for 2 years (from year 7 to year 5) at 14%, m = 2

P = F(1 + i)-n

Where:
F = P8,000
t = 2 years
m = 2
n = 2(2) = 4
I = 14%
2
= 7%
P = P8,000(1 + 7%)-4