Problema Solution
Find the present value of an ordinary annuity of $600 payments each made quarterly over 5 years and earning interest at 4% per year compounded quarterly.
Answer provided by our tutors
C = $600 cash flow quarterly
r = 0.04 or 4% per year
i = r/4 = 0.04/4 = 0.01 or 1% quarterly rate
t = 5 years
n = 4*t = 4*5 = 20 number of payments
PV = present value
PV = C[(1 - (1 + i)^(-n))/i]
PV = 600[(1 - (1 + 0.01)^(-20))/0.01]
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PV = $10,827.33
The present value is $10,827.33.