Question

Trish receives $450 on the first of each month. Josh receives $450 on the last day of each month. Both Trish and Josh will receive payments for next four years. At a discount rate of 9.5 percent, what is the difference in the present value of these two sets of payments?
A.$141.80
B.$151.06
C.$154.30
D.$159.08
E.$162.50

Answer 1

Answer:

A.$141.80

Explanation:

Present Value of Trish payments = $P+P\frac{1-(1+(r/m))^{-(n-1)} }{r/m}$

Present Value of Trish payments = $450 + $450 $\frac{1-(1+(0.095/12))^{-(48-1)} }{0.095/12}$

Present Value of Trish payments = $180,54

Present Value of Josh payments = $P\frac{1-(1+(r/m))^{-n} }{r/m}$

Present Value of Josh payments = $450 $\frac{1-(1+(0.095/12))^{-48} }{0.095/12}$

Present Value of Josh payments = $17,912

Difference between two payments = 18054 - 17912 = 141