Question

A rich aunt has promised you $5000 one year from today. In addition, each year after that, she

has promised you a payment (on the anniversary of the last payment) that is 5% larger than the

last payment. She will continue to show this generosity for 20 years, giving a total of 20 payments.

If the interest rate is 5%, what is her promise worth today?

Answer 1

0 if appl.	Payment	× Factor	Present value
1	5,000.00	0.952381	4,761.90
2	5,250.00	0.907029	4,761.90
3	5,512.50	0.863838	4,761.90
4	5,788.13	0.822702	4,761.90
5	6,077.53	0.783526	4,761.90
6	6,381.41	0.746215	4,761.90
7	6,700.48	0.710681	4,761.90
8	7,035.50	0.676839	4,761.90
9	7,387.28	0.644609	4,761.90
10	7,756.64	0.613913	4,761.90
11	8,144.47	0.584679	4,761.90
12	8,551.70	0.556837	4,761.90
13	8,979.28	0.530321	4,761.90
14	9,428.25	0.505068	4,761.90
15	9,899.66	0.481017	4,761.90
16	10,394.64	0.458112	4,761.90
17	10,914.37	0.436297	4,761.90
18	11,460.09	0.415521	4,761.90
19	12,033.10	0.395734	4,761.90
20	12,634.75	0.376889	4,761.90
Total			95,238.10

Her promise is worth $95,238.10