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

$PV = MP \times \frac{ (1 - \frac{1}{(1+r)^n} )}{r}$

Where r is monthly interest rate.

MP is the monthly payment.

$PV = 375 \times \frac{ (1 - \frac{1}{(1+0.02083)^{40}} )}{0.02083}$

$PV = 375 \times (26.96)$

$PV = \ 10,110$

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