Question

What is the present value of $100 per month at a discount rate of 6%, if the
first payment is received 5 years from now and the last payment is received 18 years from
now?

Answer 1

FIrst payment is being received 5 years from now and the last payment is being received 18 years from now. That means $100 is being received every month for 13 years(18^th year-5^th year). There are two steps to calculate the present value. First, we need to use PV formula to calculate the value of the payments as at 5^th Year wherein PMT is $100 and Discount rate is 6%(We need to divided the discount rate by 12 and multiply the nper by 12 as it is monthly payments). And then discount the previously obtained value to get the present value because no payment is being received in the first 5 years.

Calculation is as follows:

Formulas used are as follows: