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What is the equivalent amount today of future liabilities

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Gillian has entered the agreement with Geoffrey described above. She estimates that the costs of the delivery services she has promised to Geoffrey (petrol, insurance, wear and tear, etc) amount to $1440.4497277252 per month in advance for the coming 5 years.

(a) If Gillian can borrow/invest money at a rate of 2.8% p.a. effective, what is the equivalent amount today of her future liabilities? Note that this calculation should not involve the payment she receives from Geoffrey today.

(b) The money she receives from Geoffrey can be considered a loan, with repayments being the value of the services she provides in return. What is the interest rate, expressed as an effective annual rate, she is being charged on this "loan"?

Reference no: EM132651183

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