Question

Calculate the present value of the compound interest loan. (Round your answers to the nearest cent.)

$28,000 after 7 years at 4% if the interest is compounded in the following ways.

(a) annually
$  

(b) quarterly
$

Answer 1

a) Compounded annually:

Present value formula:

Where,
PV = Present Value,
FV = Future value,
i = rate of interest in decimal form
n = number of years

Substituting the value, we get:

b) Compounded quarterly

Then the formula will become:

Where,
a = Number of compounded in a year,

When compounding is quarterly, a = 4

So substituting the values, we get: