Question

Q1: Payments of $ 670 are being made at the end of each month for 5 years at an interest of 8% compounded monthly. Calculate the Present Value.

Answer 1

Answer:

The present value is  $ 26943.69

Step-by-step explanation:

Given as :

The amount paid at the end of  each month = $ 670

The time period = 5 years = 12 ×5 = 60 months

So , The total amount paid for the 60 months = $ 670 × 60 = $ 40200

The rate of interest applied compounded monthly = 8 %

Let The present value = $ P

From compounded method

Amount = Principal × $(1+\frac{\textrm Rate}{12\times 100})^{\textrm 12\times Time}$

Or, $ 40200 = P  × $(1+\frac{\textrm 8}{12\times 100})^{\textrm 12\times 5}$

Or, $ 40200 = P  × $(1.0067)^{5}$

Or, $ 40200 = P  × 1.492

∴ P = $\frac{40200}{1.492}$ = $ 26943.69

Hence The present value is  $ 26943.69  Answer