Question

What is the market value of Investment XYZ if it pays $3,232 per month, starting next month, for 6 months and the interest rate is 3.75% APR compounded monthly?

Answer #1

Market Value of Investment = PV of CFs from it.

PV of Annuity:

Annuity is series of cash flows that are deposited at regular
intervals for specific period of time.

PV of Annuity = Cash Flow * [ 1 - [(1+r)^-n]] /r

r - Int rate per period

n - No. of periods

Particulars |
Amount |

Cash Flow | $ 3,232.00 |

Int Rate | 0.3125% |

Periods | 6 |

PV of Annuity = Cash Flow * [ 1 - [(1+r)^-n]] /r

= $ 3232 * [ 1 - [(1+0.0031)^-6]] /0.0031

= $ 3232 * [ 1 - [(1.0031)^-6]] /0.0031

= $ 3232 * [ 1 - [0.9815]] /0.0031

= $ 3232 * [0.0185]] /0.0031

= $ 19181.66

Market Value of Investment is $ 19181.66

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