To find the present value (PV) of the money machine that pays $3,593.00 every six months for 28 years with an annual interest rate of 14%, you will use a financial calculator with the following values:
-
N (number of periods):
Since payments are made every six months for 28 years, the number of periods will be:
\[ N = 28 \text{ years} \times 2 \text{ (payments per year)} = 56 \text{ periods} \] -
PMT (payment):
The payment is the cash flow received per period, which is:
\[ PMT = 3,593.00 \] -
i/y (interest rate per period):
The annual interest rate is 14%. Since payments are made semi-annually, you will need to divide the annual rate by 2:
\[ i/y = \frac{14.00%}{2} = 7.00% = 0.07 \] -
FV (future value):
Since we are calculating the present value of an annuity, the future value is not a consideration here, so you can set it to:
\[ FV = 0 \] -
PV (present value):
This is what you are solving for, and you will calculate it based on the other values.
In summary:
- N = 56
- PMT = 3,593.00
- i/y = 7.00
- FV = 0
- PV = ?
Once these values are entered into the finance calculator, you can compute the present value (PV).
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