Question

If I will receive $500,000 at the end of five years with an annual interest rate of 8% compounded quarterly, the present value of this payment is calculated as:_______________.

Answer 1

PV= $336,485

Step-by-step explanation:

Given:

FV = $500,000

n = 5 years = 20 quarters

Interest rate of 8% compounded quarterly = 2%

We have a formula:

• FV = PV
  `(1+ r)^(n)`

<=> PV = FV /
`(1+ r)^(n)`

<=> PV = 500,000 /
`(1+ 0.02)^(20)`

<=> PV= $336,485