Problema Solution
find the present value of $40,000 due in 4 years at the given rate of interest 8%/year compounded monthly
Answer provided by our tutors
P = ? the present value or the principal
t = 4 years
r = 0.08 or 8% the annual interest rate
m = 12 is the number of compounding periods per year
n = m*t = 12*4 = 48 is the number of compounding periods
i = 0.08/48 is the interest rate per period
A = $40,000 the future value
A = P(1 + i)^n
P = A/((1 + i)^n)
P = 40000/((1 + 0.08/48)^48)
calculating we find
P = $36,927.1071
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The present value is $36,927.1071.