Explore BrainMass

Explore BrainMass

    PV FV Monthly Compounding

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    1. Suppose the interest rate is 7% APR with monthly compounding. What is the present value of an annuity that pays $80 every 3 months for 4 years?

    The present value of the annuity is $ (round to two decimal places)

    2. If you deposit $1 into a bank account that pays 0.5% per month for three years, the amount you will receive after the three years is: $ (round to 5 decimals)

    3. You are buying a house and the mortgage company offers to let you pay a "point" (1.0% of the total amount of the loan) to reduce your APR from 5.50% to 4.75% on your $400,000, 30-year mortgage with monthly payments.

    If you plan to be in the house for at least 5 years, should you do it?

    The monthly mortgage payment at 5.50% APR is $ (round to the nearest cent)

    4. If the rate of inflation is 4%, what nominal interest rate is necessary for you to earn a 2% real interest rate on your investment?

    The nominal interest rate is ______% (enter your response as a percent reoundedto one decimal place

    © BrainMass Inc. brainmass.com June 4, 2020, 1:20 am ad1c9bdddf
    https://brainmass.com/business/annuity/pv-fv-monthly-compounding-393880

    Solution Preview

    Please see attachment.

    MATH PROBLEMS

    1. Suppose the interest rate is 7% APR with monthly compounding. What is the present value of an annuity that pays $80 every 3 months for 4 years? The present value of the annuity is
    Year 1 2
    Period 0 (C) 3 6 9 12 15 18 21
    Amount paid $80 (A) $80 $80 $80 $80 $80 $80 $80
    Interest rate 0.58% (B) 0.58% =7%/12 0.58% 0.58% 0.58% 0.58% 0.58% 0.58%
    Discount factor 1.00 ...

    Solution Summary

    PV and FV monthly compounding is examined.

    $2.19

    ADVERTISEMENT