Question

What is the present value, to the nearest dollar, of $25,000 in 10 years where the annual interest is 3.6% compounded monthly?

Answer 1

The present value formula is expressed as

PV = FV/(1 + r/n)^nt

Where

PV = present value

FV = future value

r = interest rate

n = number of compounding in a year

t = number of years

From the information given,

t = 10

r = 3.6/100 = 0.036

FV = 25000

n = 12 because it was compounded 12 times in a year

Thus, we have

PV = 25000/(1 + 0.036/12)^12 x 10

PV = 25000/(1.003)^120

PV = 25000/1.43256

PV = 17451.28

The present value is $17451.28