Bennington Company has borrowed a certain amount from the bank that it will repay in 24 monthly installments. The bank charges 6% interest annually on this loan and the monthly payment is $6000. Find the amount of loan.
Answer
Monthly
interest = 6%/12 = 0.005
Number of
months = 24
monthly payment = 6000
PV = 6000 x
[1-1.005^-24]/0.005
PV =
135377.2
Suppose you are a property owner and you are collecting rent for an apartment. The tenant has signed a one-year lease with $600 a month rent, payable in advance. Find the present value of the lease contract if the discount rate is 12% per year.
Answer
Here monthly rent =$600, Number of months = 12 ,
We use this formula here
Present value of the lease contract = 600 + 600 x
[1-(1.01)^-11]/0.01
Present value of the lease contract = 6820.58
Here another way to do it this one:
You have started a job with an annual salary of $48,000. You will get the paycheck at the end of each month, and your deductions for taxes will be 34%. Using a discount rate of 0.8% per month, find the present value of the take home pay for the whole year.
Answer
Monthly interest rate = 0.8% = 0.008
Monthly salary = 48000/12 = 4000
Monthly salary after tax = 4000 x (1-0.34) = 2640
So Answer is 30,092.34
Your employer has promised to give you a $5,000 bonus after you have been working for him for 5 years. What is the present value of this bonus if the proper discount rate is 8%?
Answer
Present value = 5000 x (1.08)^-8 = 3402.92
