In: Finance
Problem 4-17
Present Value for Various Compounding Periods
Find the present value of $600 due in the future under each of the following conditions. Do not round intermediate calculations. Round your answers to the nearest cent.
a.Information provided:
Future value= $600
Interest rate= 10%/2= 5% per semi-annual period
Time= 5 years*2= 10 semi-annual periods
The present value is calculated by entering the below in a financial calculator:
FV= 600
I/Y= 5
N= 10
Press the CPT key and PV to compute the present value.
The value obtained is 368.35.
Therefore, the present value is $368.35 $368.
b. Information provided:
Future value= $600
Interest rate= 10%/4= 2.5% per quarter
Time= 5 years*4= 20 quarters
The present value is calculated by entering the below in a financial calculator:
FV= 600
I/Y= 2.5
N= 20
Press the CPT key and PV to compute the present value.
The value obtained is 366.16.
Therefore, the present value is $366.16 $366.
c. Information provided:
Future value= $600
Interest rate= 10%/12= 0.8333% per month
Time= 5 years*12= 60 months
The present value is calculated by entering the below in a financial calculator:
FV= 600
I/Y= 0.8333
N= 60
Press the CPT key and PV to compute the present value.
The value obtained is 364.67.
Therefore, the present value is $364.67 $365.
In case of any query, kindly comment on the solution.