Question

Can you please explain me this question? Thanks!

What is the discounted value of the stream of payments: $1250 received at the end of every month for 3 years and 2 months? Interest is 2.75% compounded monthly.

Answer #1

**The amount is computed as shown below:**

**Present value = Monthly payment x [ (1 – 1 / (1 +
r) ^{n}) / r ]**

**r is computed as follows:**

= 2.75% / 12 (Since the interest is compounded monthly, hence divided by 12)

**= 0.002291667**

**n is computed as follows:**

= 3 x 12 + 2 (Since the interest is compounded monthly, hence multiplied by 12)

**= 38**

**So, the amount is computed as follows:**

= $ 1,250 x [ (1 - 1 / (1 + 0.002291667)^{38} ) /
0.002291667 ]

**= $ 45,440.71 Approximately**

Feel free to ask in case of any query relating to this question

what is the discounted value of the stream of payments: $1250
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