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
>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] |
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