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Money borrowed today is to be paid in 6 equal payments at the end of 6 quarters. If the interest is 12% Compounded Quarterly. How much was initially borrowed if quarterly payment is $2000

Answer is $10834.38

I've tried the Compound Interest Formula:

A = P(1+r/n)^nt
2000 = P(1+0.12/4)^(4*(6/4))

I am Getting P = 1674

What am I doing wrong? Any hint?

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  • $\begingroup$ Why $A=2000$? It's a quarterly payment and not the total amount... $\endgroup$ – d.k.o. Jun 28 '15 at 6:58
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The calculation you show in your work answers a different question, namely: How much should I invest now with a one-time deposit so as to have $\$ 2000$ after six quarters?

For your stated problem, you should use the present value of annuity formula: $V=R\cdot \frac{1-(1+i)^{-n}}{i}$ where $R=\$2000$, $i=.03$, and $n=6$.

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