Question

2

Find the present value of $600 due in the future under each of these conditions:

1. 12% nominal rate, semiannual compounding, discounted back 9 years. Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

2. 12% nominal rate, quarterly compounding, discounted back 9 years. Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

3. 12% nominal rate, monthly compounding, discounted back 1 year. Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

4. Why do the differences in the PVs occur?
   -Select-The present values decline as periods per year increase.The present values decline as periods per year decrease.The present values increase as periods per year increase.The present values are not affected by changes in the number of periods per year.The present values are positively related to the number of discounting periods per year.Item 4

Answer 1

Ans:- Present Value = Future Value / (1+r/m)^(m*n), where r is the rate of return, m is the number of compounding periods and n is the number of years.

Ans:- (d) From the above analysis it is clear that if the number of periods per year increases if other variables remain constant, then the Present Value will decline, therefore option (a) is the correct answer.

The Present Value declines as periods per year increases.

The Present value in (c) is greater in spite of 12 periods per year because it is discounted back to only 1 year.

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