The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
If you must calculate the present value of an amount at 12% compounded quarterly for 2 years, then the interest factor used in the calculation is
A) 3% for eight periods
B) 12% for eight periods
C) the interest factor for 12% for two periods divided by 4
D) None of these choices

Question

The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. ​​
If you must calculate the present value of an amount at 12% compounded quarterly for 2 years, then the interest factor used in the calculation is
A) 3% for eight periods
B) 12% for eight periods
C) the interest factor for 12% for two periods divided by 4
D) None of these choices​

Quizplus · Accepted Answer

When calculating the present value of an amount at 12% compounded quarterly for 2 years, the interest rate per period is 12% divided by 4 (for the four quarters in a year), which equals 3%. Since there are 2 years, and the interest is compounded quarterly, there are 2*4 = 8 periods. Therefore, the correct choice is 3% for eight periods.

The Solution to This Problem Requires Time Value of Money