Question

Tatsuo has just been awarded a four-year scholarship to attend the university of his choice. The scholarship will pay $9,000 each year for the next four years to reimburse normal school-related expenditures. Each $9,000 payment will be made at the end of the year, contingent on Tatsuo maintaining good grades in his classes for that year. Assuming an annual interest rate of 7.0%, determine the value today of receiving this scholarship if Tatsuo maintains good grades. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answer to 2 decimal places.)

Answer 1

Value of scholarship today = $30,484.90

Step-by-step explanation:

The value of the Scholarship is the present value of the annual payment of $9,000 discounted as the annual interest rate of 7% per annum.

This can be computed using the formula below

Present Value = Annual cash flow × (1- (1+r)^(-n)/r)

n -number of years, r-interest rate

rate r- 7%, n=4, Annual cash flow = 9,000

Present Value = 9,000× (1-1.07^-4)/0.07

= 9,000× 3.3872

= $30,484.90

Value of scholarship today = $30,484.90