Question

Siobhan will receive a 5,000 lump-sum bonus from work in five years if she earns 5% interest compounded quarterly what’s the present value of the bonus

Answer 1

Answer:

The present value of the bonus is $3900.

Step-by-step explanation:

Let $P is the present value of the bonus.

So, this $P amount of bonus grows for 5 years at an interest rate of 5% compounded quarterly to become $5000 lump-sum.

Then the quarterly interest is $(\frac{5}{4})= 1.25\%$.

So, from the formula of compound interest we can write the equation  

$5000 = P(1 + \frac{1.25}{100} )^{5 \times 4}$

⇒ 5000 = P(1.282)

⇒ P = $3900

Therefore, the present value of the bonus is $3900. (Answer)