Question

Betty will receive an award of $3,000 at the end of each half year for the next 3 years at 6% p.a. payable half yearly? What is the present value of Jessie’s scholarship?

Select one:

a. $16,963.74

b. $17,996.87

c. $15,333.45

d. $16,251.57

Answer 1

The present value is computed as shown below:

Present value = Half yearly payments x [ (1 – 1 / (1 + r)n) / r ]

r is computed as follows:

= 6% / 2 (Since the payments are half yearly, hence divided by 2)

= 3% or 0.03

n is computed as follows:

= 3 x 2 (Since the payments are half yearly, hence multiplied by 2)

= 6

So, the amount will be computed as follows:

= $ 3,000 x [ (1 - 1 / (1 + 0.03)6 ) / 0.03 ]

= $ 3,000 x 5.417191444

= $ 16,251.57 Approximately

So, the correct answer is option d.

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