A financial contract offers to pay (:1,200 per month for five years with the first payment made immediately. Assuming an annual discount rate of 6.5%, compounded monthly the present value ofthe contract is closest to:
Using a financial calculator: N = 60; the discount rate, I/Y = (6.5%/12) = 0.54166667; PMT = €1,200; Future value = €0; Mode = Begin; Calculate present value (PV): PV = €61,662.62.
Alternatively: Treat the stream as an ordinary annuity of 59 periods and add the current value of €1,200 to the derived answer. Using a financial calculator: N = 59; the discount rate, I/Y = (6.5%/12) = 0.54166667; PMT = €1,200; Future value = €0; Mode = End; Calculate PV: PV = €60,462.62; Total PV = €1,200 + €60,462.62 = €61,662.62.