Question

Find the amount and present value of 10 quarterly payments of $ 1500, if the interest rate is 25% compounded each month.

Answer 1

Given Information:

Monthly payment = MP = $1500/4 = $375

Monthly interest rate = r = 25/12 = 2.083%

Required Information:

Present Value = ?

Answer:

`PV = \$10,110`

Explanation:

n = 10*4

n = 40 monthly payments

The present value is found by

`$ PV = MP * ( (1 - (1)/((1+r)^n) ))/(r) $`

Where r is monthly interest rate.

MP is the monthly payment.

`$ PV = 375 * ( (1 - (1)/((1+0.02083)^(40)) ))/(0.02083) $`

`PV = 375 * (26.96)`

`PV = \$10,110`

Therefore, $10,110 is the present value of 10 quarterly payments of $1500 each at 25% interest rate compounded each month.