SOLUTION: what is the present value of a loan that calls for the payment of $500 per year for six years if the discount rate is 10% and the first payment will be made one year from now?

Question 982290: what is the present value of a loan that calls for the payment of $500 per year for six years if the discount rate is 10% and the first payment will be made one year from now?
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
you will be discounting the payments at 10% per year.
the first payment is 1 yeqr from now.
the second payment is 6 years from now.
the present value of each of the payments are:
first payment = 500 / 1.10
second payment = 500 / 1.10^2
third payment = 500 / 1.10^3
fourth payment = 500 / 1.10^4
fifth payment = 500 / 1.10^5
sixth payment = 500 / 1.10^6
add up all of the present values and you get:
present value of the loan is equal to 2,177.63
if you put the right number in a financial calculator, it will tell you the same thing.
here's a financial calculator that you can use.
http://www.arachnoid.com/lutusp/finance.html
you would make the following entries:
present value = 0
future value = 0
number of payments = 6
payment = -500
interest rate per period, % = 10
payment at: end
you would then click on PV and you would get the present value of 2,177.63

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