Question

3. Present Value. Compute the present value of $500 for the following combinations of annual percentage rates, years, and compounding periods (a) APR-10%, n-5 years, m-365 (daily) (b) APR-10%, n-10 years, m-1 (annually) (c) APR-10%, n-20.25 years, m-4 (quarterly)

Please show step by step answer. NOT in the excel format.

Answer 1

a)

	Present value of $500	FV×(1÷(1+r)^n)
	Here,
A	rate per annum	10.00%
B	Number of years	5
C	Number of compoundings per per annum	365
A÷C	rate per period ( r)	0.03%
B×C	Number of periods (n)	1,825
	Preferred stock price in 7 years (FV)	$                                 500.00
	Present value of $500	$            303.29
		500×(1÷(1+0.03%)^1825)

b)

	Present value of $500	FV×(1÷(1+r)^n)
	Here,
A	rate per annum	10.00%
B	Number of years	10
C	Number of compoundings per per annum	1
A÷C	rate per period ( r)	10.00%
B×C	Number of periods (n)	10
	Preferred stock price in 7 years (FV)	$                        500.00
	Present value of $500	$       192.77
		500×(1÷(1+10%)^10)

c)

	Present value of $500	FV×(1÷(1+r)^n)
	Here,
A	rate per annum	10.00%
B	Number of years	20.25
C	Number of compoundings per per annum	4
A÷C	rate per period ( r)	2.50%
B×C	Number of periods (n)	81
	Preferred stock price in 7 years (FV)	$                        500.00
	Present value of $500	$         67.66
		500×(1÷(1+2.5%)^81)