Question 1
Multiple Choice
Confidence Level
0%
Using a discount rate of 6%, compounded monthly, the present value (PV) of $6,000 to be received four years from today is closest to:
Explanation
To find the present value (PV) with monthly compounding, use the formula:
PV = FV × (1 + r/m)^−mN
Where:
FV = 6,000
r = 6% or 0.06 (annual interest rate)
m = 12 (monthly compounding periods)
N = 4 (years)
Step-by-step calculation:
PV = 6,000 × (1 + 0.06/12)^−12×4
= 6,000 × (1.005)^−48
= 6,000 × 0.787098
≈ $4,722.59
Using a BA II Plus calculator:
FV = 6,000
I/Y = 0.5 = (6% ÷ 12)
N = 48
PMT = 0
CPT → PV
Result: PV ≈ $4,722.59