your uncle promise to give you $600.00 per quarter for the next five years. How much...

your uncle promise to give you $600.00 per quarter for the next five years. How much is his promise worth right now if the interest rate is 0.07 compounded quaterly?

Expert Solution

Present worth factor(PWF)

Worth of $1 invested in each period for N periods with interest rate of i per period can be given by the Present worth factor(PWF)=(P/A, i,N)=(((1+i)^N)-1)/(i((1+i)^N))

Annual interest=0.07 compounded quarterly

i=interest rate for the period(quarter)=0.07/4= 0.0175

N=number of periods=5years=5*4=20 quarters

PWF=(((1+i)^N)-1)/(i((1+i)^N))=(((1+0.0175)^20)-1)/(0.0175*((1+0.0175)^20))= 16.75288

Hence Present worth of $600 per quarter for 20 quarter is=600*16.75288= $ 10,051.73

The Present Worth can also be calculated by excel PV function with Rate=0.0175, Nper=20,Pmt=600

Present worth of $600 per quarter for 20 quarter

$10,051.73

jeff jeffy answered 2 years ago

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