Find the present value of $800 due in the future under each of these conditions:
10% nominal rate, semiannual compounding, discounted back 8
years. Round your answer to the nearest cent.
$
10% nominal rate, quarterly compounding, discounted back 8
years. Round your answer to the nearest cent.
$
10% nominal rate, monthly compounding, discounted back 1 year.
Round your answer to the nearest cent.
$
1.We use the formula:
A=P(1+r/200)^2n
where
A=future value
P=present value
r=rate of interest
n=time period.
800=P(1+0.1/2)^(2*8)
P=$800/(1+0.1/2)^(2*8)
=$366.49
2.We use the formula:
A=P(1+r/400)^4n
where
A=future value
P=present value
r=rate of interest
n=time period.
800=P(1+10/400)^(4*8)
P=$800/(1+10/400)^(4*8)
which is equal to
=363.02(Approx)
3.We use the formula:
A=P(1+r/1200)^12n
where
A=future value
P=present value
r=rate of interest
n=time period.
800=P(1+10/1200)^(12)
P=$800/(1+10/1200)^(12)
which is equal to
=$724.17(Approx).
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