Question

Trish receives $450 on the first of each month. Josh receives $450 on the last day of each month. Both Trish and Josh will receive payments for the next four years. At an interest rate of 9.5 percent compounded monthly, what is the difference in the present value of these two sets of payments

Answer 1

$141.80

Step-by-step explanation:

Calculation for the difference in the present value of these two sets of payments

First step is to calculate for the PVA Due

PVA Due = $450 × [(1 - {1 / [1 + (.095 / 12)]^(4 × 12)}) / (.095 / 12)] × [1 + (.095 / 12)]

PVA Due = $18,053.58

Second step is to find the PVA

PVA = $450 × [(1 - {1 / [1 + (.095 / 12)]^(4 × 12)}) / (.095 / 12)]

PVA= $17,911.78

Since we have know both the PVA Due and the PVA the last step will be to know the difference between the both sets of payments using this formula

Difference= PVA Due - PVA

Difference = $18,053.58 - 17,911.78

Difference= $141.80

Therefore the difference in the present value of these two sets of payments will be $141.80