Question

An obligation of $5000 is due on December 1, 1995. What was the value of this obligation on July 16, 1990, at 10% compounded semiannually?

Answer 1

This can be solved using Future value formula Future value = Present value *(1+r)^n Future value is 5 5,000/ Present value is = value on 16th July 1990 = ? "n" is No of years outstanding = 5.4556 years or 10.91 semi annuals (1964 days) (from 16th July 1990 to 01st December 1995) "r" is Rate of interest = 10%/2 = 5% 5000=Present value*(1+0.05) 10.91 5000-Present value*1.702845527 Present value is = (5000/1.702845527) Present value is = 2,936.26).