Question

Find the present value of $500 due in five years

Answer 1

Answer:

500×5

2500 is the value of given question

Answer 2

a. 12% simple rate, compounded annually

b. 12% simple rate, compounded semiannually

c. 12% simple rate, compounded quarterly

d. 12% simple rate, compounded monthly

Present value:
Present value is the equivalent monetary value today of the value of money to be received or paid at any point of time in future. It is the discounted value of the future value received at a future point of time.

Answer and Explanation:
Present value
= Future value / (1 + {Periodic Rate)^Number of periods

In the question,

Future value = $500.00

Question a)

Periodic rate = 12% = 0.12

Number of periods = 5

So,

Present value = 500 / 1.12^5 = $283.71

Question b)

Periodic rate = 12 / 2 = 6% = 0.06

Number of periods = 5 x 2 = 10

So,

Present value = 500 / 1.06^10 = $279.20

Question c)

Periodic rate = 12 / 4 = 3% = 0.03

Number of periods = 5 x 4 = 20

So,

Present value = 500 / 1.03^20 = $276.84

Question d)

Periodic rate = 12 / 12 = 1% = 0.01

Number of periods = 5 x 12 = 60

So,

Present value = 500 / 1.01^60 = $275.22