COMPUTE THE PRESENT VALUE OF THE FOLLOWING SET OF PAYMENTS FOR TWO...
2. Compute the present value of the following set of payments for two years: $300 each quarter for the first year and $600 each quarter for the second year. The effective annual rate is 6% and payments will begin at the end of the first quarter. A) $3,000.56 B) $3,340.77 C) $3,514.06 D) $3,854.02 E) $3,999.14 Solution B The quarterly interest rate is (1+ .06)
1/4
-1 = . 01467 =1.467% Using your calculator: PV Annuity 1: PMT= 300; n=4, FV = 0; I/Y = 1.467, COMP PV PV1 = $1,157.25 PV Annuity 2: PMT= 600; n=4, FV = 0; I/Y = 1.467, COMP PV at start of year 2 PV = 2314.50 and bring back to time zero: PV2 = 2314.50 / (1.01467)4
= 2,183.52 PV entire stream: = 1157.25 + 2183.52 = $3,340.77