6. Find the present value of a lump sum of $500 in five years if the...

Question

Question

business finance

Answer 1

Answer #1

Lump sum value after 5 years = $500

So, PV = FV/(1+r/n)^(n*t)

a). APR = 6% compounded annually, so n = 1

PV = 500/1.06^5 = $373.63

b). APR = 6% compounded semiannually, so n = 2

PV = 500/(1 + 0.06/2)^(2*5) = $372.05

c). APR = 6% compounded monthly, so n = 12

PV = 500/(1 + 0.06/12)^(12*5) = $370.69

Answer 2

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