Question

Present Value for Various Compounding Periods Find the present value of $675 due in the future under each of the following conditions. Do not round intermediate calculations. Round your answers to the nearest cent. a. 6% nominal rate, semiannual compounding, discounted back 5 years. $ 504.40 b. 6% nominal rate, quarterly compounding, discounted back 5 years. $ c. 6% nominal rate, monthly compounding, discounted back 1 year.

Answer 1

a). FV = $675

interest rate = 6% compounded semiannually

So, PV = FV/(1+r/n)^(n*t) = 675/(1+0.06/2)^(2*5) = $502.26

b). FV = $675

interest rate = 6% compounded quarterly

So, PV = FV/(1+r/n)^(n*t) = 675/(1+0.06/4)^(4*5) = $501.17

c). FV = $675

interest rate = 6% compounded monthly

So, PV = FV/(1+r/n)^(n*t) = 675/(1+0.06/12)^(12*1) = $635.79