Question

SIX Company signed a contract to receive $500 per month for one year. The first receipt is due immediately. Assume an interest rate of 12%. Determine the present value.

a. $3,097

b. $5,628

c. $3,469

d. $5,684

Answer 1

• Correct Answer = Option ‘D’ $ 5,684
• Working

>12% is annual rate
>Monthly rate = 12% x 1/12 = 1%

	Present value factor		Future value	Present value
	[A]		[B]	[C = A x B]
Month #1	1	=1/(1.01^0)	$500	$500
Month #2	0.99009901	=1/(1.01^1)	$500	$495
Month #3	0.980296049	=1/(1.01^2)	$500	$490
Month #4	0.970590148	=1/(1.01^3)	$500	$485
Month #5	0.960980344	=1/(1.01^4)	$500	$480
Month #6	0.951465688	=1/(1.01^5)	$500	$476
Month #7	0.942045235	=1/(1.01^6)	$500	$471
Month #8	0.932718055	=1/(1.01^7)	$500	$466
Month #9	0.923483222	=1/(1.01^8)	$500	$462
Month #10	0.914339824	=1/(1.01^9)	$500	$457
Month #11	0.905286955	=1/(1.01^10)	$500	$453
Month #12	0.896323718	=1/(1.01^11)	$500	$448
				$5,684 [ANSWER]