Question

Q1: Payments of $ 670 are being made at the end of each month for 5 years at an interest of 8% compounded monthly. Calculate the Present Value.

Answer 1

The present value is $ 26943.69

Explanation:

Given as :

The amount paid at the end of each month = $ 670

The time period = 5 years = 12 ×5 = 60 months

So , The total amount paid for the 60 months = $ 670 × 60 = $ 40200

The rate of interest applied compounded monthly = 8 %

Let The present value = $ P

From compounded method

Amount = Principal ×
`(1+(\textrm Rate)/(12* 100))^(\textrm 12* Time)`

Or, $ 40200 = P ×
`(1+(\textrm 8)/(12* 100))^(\textrm 12* 5)`

Or, $ 40200 = P ×
`(1.0067)^(5)`

Or, $ 40200 = P × 1.492

∴ P =
`(40200)/(1.492)` = $ 26943.69

Hence The present value is $ 26943.69 Answer