Martha receives $100 on the first of each month. Stewart receives $100 on the last day of each month. Both Martha and Stewart will receive payments for five years. At an 8% discount rate,what is the difference in the present value of these two sets of payments?

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Quizplus · Accepted Answer

The present value of Martha's payments is higher because she receives the money at the beginning of each month, allowing for more time to accrue interest. The difference in present value is calculated using the formula for the present value of an annuity due (Martha) and an ordinary annuity (Stewart), resulting in a difference of $32.88.

Martha Receives $100 on the First of Each Month