What is the economic value today of each of the following payment streams if money can earn 7.5%?(Note that the two streams have the same total nominal value.)

a. $1000, $3000, and $2000 due in one, three, and five months, respectively.

b. Two $3000 payments due two and four months from now.

I'm not really sure where to start or how to tackle this problem.

To find the economic value of each payment stream, we need to calculate the present value of the future cash flows. The present value represents the current worth of a future cash flow, taking into account the time value of money.

To calculate the present value, we can use the formula:

PV = CF / (1 + r)^n

Where:
PV = Present value
CF = Cash flow
r = Interest rate (as a decimal)
n = Number of periods

Let's break down each payment stream and calculate their present values one by one:

a. $1000, $3000, and $2000 due in one, three, and five months, respectively.
First, we need to convert the months to years for the interest rate consistency. We divide each period by 12 to get the interest rate per month: 7.5% / 12 = 0.625% or 0.00625 as a decimal.

Now let's calculate the present value for each cash flow:
PV1 = $1000 / (1 + 0.00625)^1
PV2 = $3000 / (1 + 0.00625)^3
PV3 = $2000 / (1 + 0.00625)^5

b. Two $3000 payments due two and four months from now.
Again, we convert the months to years: 7.5% / 12 = 0.625% or 0.00625 as a decimal.

Now let's calculate the present value for each payment:
PV1 = $3000 / (1 + 0.00625)^2
PV2 = $3000 / (1 + 0.00625)^4

To find the economic value, add up the individual present values for each payment stream.

For payment stream a:
Economic Value = PV1 + PV2 + PV3

For payment stream b:
Economic Value = PV1 + PV2

By calculating the present values using the appropriate formula and plugging in the respective cash flows, interest rates, and time periods, you can find the economic value of each payment stream based on the given information.