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.
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)
n is computed as follows:
= 3 x 12 + 2 (Since the interest is compounded monthly, hence multiplied by 12)
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
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