Question

Your grandmother is gifting you $125 a month for four years while you attend college to earn your bachelor's degree. At a 6.5 percent discount rate, what are these payments worth to you on the day you enter college? A. $5,201.16 B. $5,270.94 C. $5,509.19 D. $5,608.87 E. $5,800.00

Answer 1

Answer:

The answer is B. $5,270.94

Explanation:

C is the cash flow per period

i is the rate of interest

n is the frequency of payment

PV of an Annuity = C x [ (1 – (1+i)^-n) / i ]

PV of an Annuity =125  x [ (1 – (1+0.065/12)^-12*4) / 0.065/12] = $5,270.94