Question

You expect to be paid $5,000 per month for the next 6 years with the first...

You expect to be paid $5,000 per month for the next 6 years with the first cash flow starting in 1 month. Assuming an annualized APR (AEY) of 9%, what is the present value of these cash flows to the nearest dollar?

A) 237,598

B) 240,867

C) 242,856

D) 269,155

E) None of the above

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Homework Answers

Answer #1

Here the APR is given which is also called Effective rate. There are two ways to do the sum either you convert APR into nominal rate and then compound it accordingly but we are not given whether it is compounded monthly or quarterly of half yearly or yearly.

Now we know that the formula for PV is given by :

PV =

C = 5000 * 12 = 60,000 (As the amount is discounted at APR thus we will convert cashflow into yearly cashflow)

r = 9%

n = 6

PV = 60000 * (1-(1.09)^-6)/0.09

= 60000 * 0.4037326731/0.09

= 60000 * 4.4859185902

= 269155.11

= 269,155

Ans D : 269,155

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