Chapter 6, Problem 6.8E

1.

To determine

Present Value:

The value of today’s amount to be paid or received in the future at a compound interest rate is called as present value. The following formula is used to calculate the present value of an amount:

$\text{Present value of an amount = }\frac{\text{Future value}}{{\left(\text{1 + interest rate}\right)}^{\text{number}\text{of}\text{periods}}}$

To determine: The present value on December 31, 2016 when the first payment is received on December 31, 2017 and interest is compounded annually.

2.

To determine

The present value on December 31, 2016 when the first payment is received on December 31, 2016 and interest is compounded annually.

3.

To determine

The present value on December 31, 2016 when the first payment is received on December 31, 2017 and interest is compounded quarterly.