Question

6.
Valdez Construction signed a note with a payment of $5,200 per quarter for 5 years.
Find the amount they must set aside today to satisfy this capital requirement in an account earning 8% compounded quarterly.


$30,506.32

$126,346.32

$51,054.38

$85,027.44

Answer 1

$PV = C* \frac{1- (1+r/n)^{-nt} }{r/n}$

Where, PV = Present vale, C = Quarterly payments =$52,000, r = Annual interest rate = 8% = 0.08, n = Number of  payments per year = 4, t= time of payment in years = 5

Substituting,
$PV = 52000* \frac{1- (1+0.08/4)^{-4*5} }{0.08/4} = 85,027.53$

The closest answer is $85,027.44