Question

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.

$

Answer #1

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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