Question

# Find the present value of \$600 due in the future under each of the following conditions....

Find the present value of \$600 due in the future under each of the following conditions.

12% nominal rate, semiannual compounding, discounted back 5 years.

12% nominal rate, quarterly compounding, discounted back 5 years.

12% nominal rate, monthly compounding, discounted back 1 year

Part 1: 12% nominal rate, semiannual compounding, discounted back 5 years.

r = 12%/2 = 6% (semi-annual), n = 5 * 2 = 10 semi-annual periods.

\$600 = PV * (1 + 6%)10

\$600 = PV * 1.790848

PV = \$335.04

Part 2: 12% nominal rate, quarterly compounding, discounted back 5 years.

r = 12%/4 = 3% (quarterly), n = 5 * 4 = 20 quarterly periods.

\$600 = PV * (1 + 3%)20

\$600 = PV * 1.806111

PV = \$332.21

Part 3: 12% nominal rate, monthly compounding, discounted back 1 year

r = 12%/12 = 1% (monthly), n = 1 * 12 = 12 monthly periods.

\$600 = PV * (1 + 1%)12

\$600 = PV * 1.126825

PV = \$532.47

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