Question

Stars Company received a non-interest bearing promissory note of QAR 26500 for 20 months from its customer. After 5 months, Union Bank discounted the note (before maturity) when the money was worth 3.10%.

Calculate the present value of this note.

Answer 1

The future value is:

$FV=PV(1+i)^n$

where $PV$ is the present value, $i$ is the interest per compounding period, $n$ is the number of compounding periods.

Then:

$1.031PV=PV(1+i)^5$

$1.031=(1+i)^5$

$i=\sqrt[5]{1.031}-1=0.006$

We have: $FV=26500$

$PV=\frac{FV}{(1+i)^n}$

$PV=\frac{26500}{(1+0.006)^{20}}= 23511.82$ QAR