Question

As a CFO of a company, you are asked by the company's board to make quarterly payments of $400 for 7 years to a computer firm for computer maintenance. How much money do you need to deposit into an interest bearing account paying 7.1% compounded quarterly so that you can make all the $400 payments over this 7 year period?

Answer 1

the present value is $16,203.80

Explanation:

The computation of the amount that need to deposit is given below:

Given that

PMT = $400

FV = $0

NPER = 7 × 7 = 49

RATE = 7.1% ÷ 4 = 0.7889%

The formula is shown below:

= -PV(RATE;NPER;PMT;FV;TYPE)

After applying the above formula, the amount that need to be deposit is $16,203.80

Hence, the present value is $16,203.80