A contract requires payments of $2,000 and $3,000, 90 days and 120 days, respectively, from today. What is the value of the contract today if the payments are discounted to yield a rate of return of 12%?
A) $4,824.06
B) $4,828.66
C) $4,831.48
D) $4,837.87
E) $5,177.53

Question

Quizplus · Accepted Answer

The first step is to calculate the present value of each payment:
PV1 = 2,000 / (1 + 0.12 * 90/360) = 1,920.37
PV2 = 3,000 / (1 + 0.12 * 120/360) = 2,908.29
The total present value is the sum of the two:
PV = PV1 + PV2 = 1,920.37 + 2,908.29 = 4,828.66
Therefore, the answer is (B).

A Contract Requires Payments of $2,000 and $3,000, 90 Days