Question

The Seri Kembangan Property Development Company has a RM10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate is

a) 10% simple interest?

b) 12% compounded monthly?

c) 6% compounded quarterly?

d) 18% compounded monthly?

ANS : a) RM 7,692.31 b) RM 6,989.25 c) RM 8,363.87 d) RM 5,850.90

Pls attach the formula used, and explain in detail. Pls do not answer in excel format. Thank you in advance.

Answer 1

a)

Present value = Future value / (1 + rt)

Present value = 10,000 / (1 + 0.1*3)

Present value = 10,000 / 1.3

Present value = RM 7,692.31

b)

Number of periods = 3 * 12 = 36

Rate = 12% / 12 = 1%

Present value = Future value / (1 + r)ⁿ

Present value = 10,000 / (1 + 0.01)³⁶

Present value = 10,000 / 1.43077

Present value = RM 6,989.25

c)

Number of periods = 3 * 4 = 12

Rate = 6% / 4 = 1.5%

Present value = Future value / (1 + r)ⁿ

Present value = 10,000 / (1 + 0.015)¹²

Present value = 10,000 / 1.19562

Present value = RM 8,363.87

d)

Number of periods = 3 * 12 = 36

Rate = 18% / 12 = 1.5%

Present value = Future value / (1 + r)ⁿ

Present value = 10,000 / (1 + 0.015)³⁶

Present value = 10,000 / 1.70914

Present value = RM 5,850.90