Board of Certified Safety Professionals (BCSP) Practice Exam

What is the present value of a series of monthly payments of $370 over 6 years at 4% annual interest?

1. $20,500

2. $25,000

3. $22,130

4. $23,245

The correct answer is: $23,245

To find the present value of a series of monthly payments, also known as an annuity, you use the present value of an annuity formula. The formula is: \[ PV = P \times \left( \frac{1 - (1 + r)^{-n}}{r} \right) \] Where: - \( PV \) is the present value - \( P \) is the payment amount per period - \( r \) is the interest rate per period - \( n \) is the total number of payments In this case, the monthly payment is $370, the annual interest rate is 4%, and the payments are made over 6 years. First, we convert the annual interest rate into a monthly interest rate and determine the number of total payments: 1. The monthly interest rate \( r \) is \( \frac{0.04}{12} = 0.0033333 \). 2. The total number of payments \( n \) is \( 6 \times 12 = 72 \). Now, substituting these values into the formula: \[ PV = 370 \times \left( \frac{1 - (1 + 0.003