Question
Present Value for Various Compounding Periods Find the present value of $675 due in the future...
Present Value for Various Compounding Periods Find the present value of $675 due in the future under each of the following conditions. Do not round intermediate calculations. Round your answers to the nearest cent. a. 6% nominal rate, semiannual compounding, discounted back 5 years. $ 504.40 b. 6% nominal rate, quarterly compounding, discounted back 5 years. $ c. 6% nominal rate, monthly compounding, discounted back 1 year.
Answers
a). FV = $675
interest rate = 6% compounded semiannually
So, PV = FV/(1+r/n)^(n*t) = 675/(1+0.06/2)^(2*5) = $502.26
b). FV = $675
interest rate = 6% compounded quarterly
So, PV = FV/(1+r/n)^(n*t) = 675/(1+0.06/4)^(4*5) = $501.17
c). FV = $675
interest rate = 6% compounded monthly
So, PV = FV/(1+r/n)^(n*t) = 675/(1+0.06/12)^(12*1) = $635.79
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