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You have been offered an investment that pays $500 at the end of every 6 months...

You have been offered an investment that pays $500 at the end of every 6 months for the next 3 years. The nominal interest rate is 12 percent; however, interest is compounded quarterly. What is the present value of the investment? 1. $2,458.66 $2,444.67 $2,451.73 $2,463.33 $2,437.56

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Answer #1
Calculation of present value of the investment
Quarter Cash flow Discount factor @ 3% Present Value
1 $0.00 0.970874 $0.00
2 $500.00 0.942596 $471.30
3 $0.00 0.915142 $0.00
4 $500.00 0.888487 $444.24
5 $0.00 0.862609 $0.00
6 $500.00 0.837484 $418.74
7 $0.00 0.813092 $0.00
8 $500.00 0.789409 $394.70
9 $0.00 0.766417 $0.00
10 $500.00 0.744094 $372.05
11 $0.00 0.722421 $0.00
12 $500.00 0.70138 $350.69
Present value of Investment $2,451.73
Quarterly Interest rate = 12%/4 = 3%
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