Question

Find the present value of $10,000 due at the end of 7 years if:
(a) The nominal annual interest rate is 6% compounded semi annually.
(b) The nominal annual interest rate is 4% compounded monthly.

Answer 1

a). Calculating the Present value of $10,000 due at the end of 7 years if nominal annual interest rate is 6% compounded semi annually:-

where, Future value = $10,000

r = Interest rate = 6%

n= no of periods = 7 years

m = no of times compounding in a year = 2

= $6611.18

b). Calculating the Present value of $10,000 due at the end of 7 years if nominal annual interest rate is 4% compounded monthly:-

where, Future value = $10,000

r = Interest rate = 4%

n= no of periods = 7 years

m = no of times compounding in a year = 12

= $7561.36

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