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.The discount rate is 8 percent,compounded monthly.What is the difference in the present value of these two sets of payments?

Question

Quizplus · Accepted Answer

PV_ADue = $100({1 - 1/[1 + (.08/12)]^{5 × 12}}/(.08/12))× [(1 + (.08/12)] = $4,964.722^nd BGN 2^nd SET PV = $100({1 - 1/[1 + (.08/12)]^{5 × 12}}/(.08/12))= $4,931.84 Difference = $4,964.72 - 4,931.84 = $32.88

Martha Receives $100 on the First of Each Month