PRESENT VALUE FOR VARIOUS DISCOUNTING PERIODS Find the prese

PRESENT VALUE FOR VARIOUS DISCOUNTING PERIODS Find the present value of $400 due in the future under each of these conditions: a. 4% nominal rate, semiannual compounding, discounted back 10 years. Round your answer to the nearest cent. b. 4% nominal rate, quarterly compounding, discounted back 10 years. Round your answer to the nearest cent. c. 496 nominal rate, monthly compounding, discounted back 1 year. Round your answer to the nearest cent. d. Why do the differences in the PVs occur? -Select- The present values decline as periods per year increase The present values decline as periods per year decrease. The present values increase as periods per year increase. The present values are not affected by changes in the number of periods per year. The present values are positively related to the number of discounting periods per year.

Solution

a. Present value = 400/1.02^20 = 269.19

b. present value = 400/1.01^40 = 268.66

c. present value = 400/(1+4%/12)^12 = 384.34

d. The present values decline as periods per year incrase