Question

Find the present value of $775 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. $

b. 6% nominal rate, quarterly compounding, discounted back 5 years. $

c. 6% nominal rate, monthly compounding, discounted back 1 year. $

Answer 1

a) Present Value = Future Value/(1+r)^t

= 775/(1+6%/2)^(5*2)

=775/1.03^10

= $576.67

b) present Value = 775/(1+6%/4)^(5*4)

=775/1.015^20

=$575.41

c) Present Value = 775/(1+6%/12)^12

= 775/1.005^12

=$729.98