What is the present value of a loan that calls for the payment of $500 per year

Question

What is the present value of a loan that calls for the payment of $500 per year for six years if the discount rate is 10 percent and the ?rst payment will be made one year from now? How would your answer change if the $500 per year occurred for ten years?

Explanation / Answer

) 5 percent for ten years Begin with $100 - - - > 5 percent for 1 year - - > 105 then with each $1 - - - > 105/100 = 1.05 after 1 year Then for $5,000 it would be 5,000 * 1.05 after 1 year and then 5,000 * 1.05 * 1.05 after 2 year for 10 year investment it would be 5,000 * (1.05)^10 = $8144.475 Ans

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