Question

What is the present value of an ordinary annuity having semi-annual payments of 8000 for 12 years with an interest rate of 12%compound semi- annually?

Answer 1

PV= $100,402.86

Explanation:

To calculate the present value, first, we need to determine the future value using the following formula:

FV= {A*[(1+i)^n-1]}/i

A= semiannual deposit

n=12*2= 24 semesters

i= 0.12/2= 0.06

FV= {8,000*[(1.06^24) - 1]} / 0.06

FV= $406,524.62

Now, the present value:

PV= FV / (1+i)^n

PV= 406,524.62 / 1.06^24

PV= $100,402.86