Question

Jennifer will need to pay 200 at the end of every month for the next 12 months, expect the payment of the 8th month. what is the present value, assuming a rate of 4% compounded quarterly?

Answer 1

Answer:
Calcualtion of present value of monthly payment.
Step 1: Calculation of effective interest rate
= (1+ nominal rate/4)^4 - 1
= (1 + 0.04/4)^4 -1
= (1.01)^4 -1
= 1.04060 -1
= 0.0406	or 4.06%
Monthly rate = 4.06%/12 = 0.3383%
Step 2: calculation of present value
Year	Cash inflows	Present value factor @0.3383%	Present value
1	$200	0.9966	199.33
2	$200	0.9933	198.65
3	$200	0.9899	197.98
4	$200	0.9866	197.32
5	$200	0.9833	196.65
6	$200	0.9799	195.99
7	$200	0.9766	195.33
8	$0	0.9733	0.00
9	$200	0.9701	194.01
10	$200	0.9668	193.36
11	$200	0.9635	192.71
12	$200	0.9603	192.06
		Total	2153.38
Present value (Answer)	$2,153.38