You open an investment account that pays 12% APR, compounded monthly. Compute the present value of 10 monthly payments of $5000 (the first payment made 1 month from today).
| The question is based upon present value of annuity calculation. | |||||||||
| Present value of 10 monthly payments | = | Monthly Payment x Present value of annuity of 1 | |||||||
| = | $ 5,000.00 | x | 9.471305 | ||||||
| = | $ 47,356.52 | ||||||||
| So, | |||||||||
| Present value of 10 monthly payments | $ 47,356.52 | ||||||||
| Working: | |||||||||
| Present value of annuity of 1 | = | (1-(1+i)^-n)/i | Where. | ||||||
| = | (1-(1+0.01)^-10)/0.01 | i | 1% | ||||||
| = | 9.471305 | n | 10 | ||||||
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