Question

You are offered a series of monthly payments of $10, continuing forever. If you deposit these at a nominal interest rate of 12%, compounded monthly, what is the present worth of the series?

a. $120
b. $1000
c. $1200
d. $1500
e. Infinite

Answer 1

Answer:

Present value will be equal to $1000

So option (B) will be correct answer

Explanation:

We have given monthly payment of $10

Annual rate of interest r = 12%

As we know that 1 year = 12 month

So monthly interest will be equal to $=\frac{12}{12}=1$ % = 0.01

We have to find the present value

Present value will be equal to ratio of monthly payment to rate of interest

So present value will be equal to

Present value $=\frac{monthly\ payment}{monthly\ interest}=\frac{10}{0.01}=1000$ $

So present value will be $1000

So option (B) will be correct answer

Answer 2

According to the above equation, the present worth of the series include option B: $1000.

What is the term compound interest about?

A compound interest is defined as the interest that are generally based on the principal amount of loan that collect on it.

Given Information:

• Monthly payment of $10
• Annual rate of interest r = 12%

As we know that 1 year = 12 month

So, monthly interest will be equal to 12/12%=1% = 0.01

Present value will be equal to ratio of monthly payment to rate of interest

Present value=Monthly payment/monthly interest=10/0.01=$1,000

Therefore, correct option is B.

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