Money is worth 5% compounded semi-annually. What is the value today of a contract that will bring in a payment of $86,500 in nine years?
A) $63,276
B) $38,090
C) $55,461
D) $41,962
E) $55,759

Question

Quizplus · Accepted Answer

To find the present value of a future payment when interest is compounded semi-annually, we use the formula PV = FV / (1 + r/n)^(nt), where PV is the present value, FV is the future value ($86,500), r is the annual interest rate (5% or 0.05), n is the number of times the interest is compounded per year (2 for semi-annually), and t is the time in years (9 years). Plugging in the values, we get PV = $86,500 / (1 + 0.05/2)^(2*9) = $86,500 / (1.025)^18 ≈ $55,461.

Money Is Worth 5% Compounded Semi-Annually