Question

6.

Valdez Construction signed a note with a payment of $5,200 per quarter for 5 years.
Find the amount they must set aside today to satisfy this capital requirement in an account earning 8% compounded quarterly.


$30,506.32

$126,346.32

$51,054.38

$85,027.44

Answer 1

`PV = C* (1- (1+r/n)^(-nt) )/(r/n)`

Where, PV = Present vale, C = Quarterly payments =$52,000, r = Annual interest rate = 8% = 0.08, n = Number of payments per year = 4, t= time of payment in years = 5

Substituting,

`PV = 52000* (1- (1+0.08/4)^(-4*5) )/(0.08/4) = $85,027.53`

The closest answer is $85,027.44