You may attempt this question 3 more times for credit. What is the present value

Question

You may attempt this question 3 more times for credit. What is the present value of 12 consecutive annual payments of $1500 made at the end of each year and beginning in one year if the interest rate is 4.15%? You should set your calculator for at least four decimal places of accuracy. Ill remind you of this from time to time but this is a working rule throughout the semester Place your answer in dollars and cents. Do not include a dollar sign or comma in your answer. This is another rule that I'll remind you of but should be a working rule throughout the semester. CHECK ANSWER

Explanation / Answer

If $1500 is discounted at 4% for 12 years consecutive payments, the present value comes is $14077.50

If $1500 is discounted at 5% for 12 years consecutive payments, the present value comes is $13294.5

So, the actual present valu of $1500 for 12 years consecutive payments at 4.15% lies somewhere between above two values. Thus we have to weighted average method to get accurate present value.

=> 13294.5 + (5 - 4.15) * (14077.50 - 13294.5) / (5 - 4)

= 13294.5 + 0.85 * 783 = $13960.05 ($13960 and 5 cents)

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