Question

Your parents are giving you $170 a month for 5 years while you are in college. At a 7 percent discount rate, what are these payments worth to you when you first start college

Answer 1

PV= $8,586.15

Step-by-step explanation:

Giving the following information:

Cash flow= $170

Number of months= 5*12= 60

Discount rate= 0.07/12= 0.00583

First, we need to calculate the future value, using the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

FV= {170*[(1.00583 ^60)-1]} / 0.00583

FV= $12,169.53

Now, the present value:

PV= FV/(1+i)^n

PV= 12,169.53/(1.00583^60)

PV= $8,586.15