Question

What is the present value​ (PV) of an investment that pays $90,000 every year for four years if the interest rate is 9​% ​APR, compounded​ quarterly?

Answer 1

Hi

At first we will calculate effective annual rate from APR

EAR = (1+APR/n)^n-1

= (1+9%/4)^4 -1

= 1.0225^4 -1

=9.308%

yearly payment C = $90,000

time t = 4 years

Present Value P = (C/r)*(1-(1+r)-t)

= (90000/9.308%)*(1-1.09308^-4)

=966875.7*0.2995

=$289,612.35

Thanks