You are offered payments of $475 at the end of each semi-annual period for 6.5 years. You think that the cost of money is 6.14% compounded semi-annually. What is the present cash value?
A) $5092.06
B) $5029.06
C) $5209.06
D) $5292.06
E) $5290.06

Question

Quizplus · Accepted Answer

Using the formula for present value of an annuity:

PV = PMT x ((1 - (1 + i)^-n) / i)

Where:
PMT = Payments at the end of each semi-annual period = $475
i = Interest rate per period = 6.14% compounded semi-annually
n = Number of periods = 13

PV = $475 x ((1 - (1 + 0.0614/2)^-13*2) / (0.0614/2)) = $5,029.06

Therefore, the present cash value is $5,029.06, which corresponds to choice B.

You Are Offered Payments of $475 at the End of Each