Question

A financial contract offers to pay $1200 per month for five years with the first payment made immediately. Assuming an annual discount rate of 6.5%, compounded monthly, the present value of the contract is closest to :

a) $61330
b) $61663
c) $63731​

Answer 1

Answer:

it is b)$61663

Step-by-step explanation:

"The Time Value of Money," Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, andDavid E. RunkleSection 6.1Using a financial calculator:N= 60; the discount rate,I/Y= (6.5%/12) = 0.54166667; PMT =€1,200; Future value = €0; Mode = Begin; Calculate present value (PV): PV = €61,662.62.Alternatively: Treat the stream as an ordinary annuity of 59 periods and add the current value of€1,200 to the derived answer. Using a financial calculator:N= 59; the discount rate,I/Y(6.5%/12) = 0.54166667;PMT = €1,200; Future value = €0; Mode = End; Calculate PV: PV =€60,462.62; Total PV = €1,200 + €60,462.62 = €61,662.62.