Question

A friend wants to borrow money from you. He states that he will pay you $2.800 every 6 months for 10 years with the first payment exactly 6 years and six months from today. The interest rate Is an APR of 51 percent with semiannual compounding. What is the value of the payments today? Multiple Choice $32,23430 S23166 33519 o $32.4470 o 5301301

Answer 1

Hello Sir/ Mam

YOUR REQUIRED ANSWER IS OPTION D : $32,114.70

Amount of $2800 received for 20 periods of 6 months with first payment 6years6months from now,

hence, the value of such payment stream at time t=6 will be

Using excel funciton, "=PV(5.1%/2,20,-2800,0,0)", we get the value = $43,444.20

Now, its present value at t=0 will be

Using excel fucntion, "=PV(5.1%/2,12,0,-43444.2,0)", we get PV = $32,114.70

Thanks!

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