Question

In: Finance

Your parents plan to give you $200 a month for four years while you are in...

Your parents plan to give you $200 a month for four years while you are in college. At a discount rate of 6 percent, compounded monthly, what are these payments worth to you when you first start college?

$8,797.40

$8,409.56

$8,198.79

$8,516.06

$8,279.32

Solutions

Expert Solution

Payments worth P×[1-(1÷(1+r)^n)]÷r
Here,
1 Interest rate per annum 6.00%
2 Number of years                                                                4
3 Number of compoundings per per annum                                                              12
4 = 1÷3 Interest rate per period ( r) 0.50%
5 = 2×3 Number of periods (n) 48
Payment per period (P) $                                                       200
Payments worth $                                             8,516.06
200*[1-(1/(1+0.50%)^48]/0.50%

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