Final answer:
To determine how much Ezra paid for the promissory note, the present value of the future amount $5,000 is calculated using the formula for compound interest, considering a monthly compounded interest rate of 6.5% over the period of 5 years.
Step-by-step explanation:
The question asks how much Ezra paid for a promissory note that is worth $5,000 in 5 years with a rate of return of 6.5%, compounded monthly. To find out how much Ezra paid, we can use the present value formula for compound interest: Present Value = Future Value / (1 + i)n, where 'i' is the monthly interest rate and 'n' is the total number of compounding periods.
First, we convert the annual interest rate to a monthly rate by dividing by 12: Monthly Interest Rate = 6.5% / 12, which is approximately 0.005417.
Next, we calculate the total number of compounding periods: Compounding Periods (n) = 5 years * 12 months/year = 60 months.
Now, we can find out how much Ezra paid for the promissory note:
Present Value = $5,000 / (1 + 0.005417)60
By calculating the above expression, we will get the amount Ezra paid for the promissory note.