Question

A series of quarterly payments of P1,300 each at the first payment is due at 4 years, and the last payment at the end of 12 years. If money is worth 5 ½ % compounded quarterly:

Answer 1

The Value of Payments is P18,557.15

Explanation:

The quarterly payment is an annuity payment.

Use the following formula to calculate the present value of the payments.

PV of Annuity = Annuity Payment x ( 1 - ( 1 + interest rate )^-Numbers of periods ) / Interest rates

Where

Annuity Payment = Quarterly payment = P1,300

Interest rate = 5.12% x 3/12 = 1.375%

Numbers of periods = 4 years x 12/3 = 16 quarters

PV of Annuity = Value of Payments = ?

Placing values in the formula

Value of Payments = P1,300 x ( 1 - ( 1 + 1.375% )^-16 ) / 1.375%

Value of Payments = P18,557.15