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9 December, 16:54

Your parents are giving you $100 a month for four years while you are in college. At an 8% discount rate, what are these payments worth to you when you first start college?

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  1. 9 December, 17:12
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    These payments worth to me when I first start my college are$4,303.

    Explanation:

    Monthly Payments = P = $100

    Interest rate = i = 5.5% = 0.055 = 0.055/12 = 0.00458

    Number of years = 4 years

    Period in a year = 12 months

    Number of total periods = n = 4 x 12 = 48 periods

    APV = P [ 1 - (((1 + i) ^-n) / i) ]

    APV = 100 [ (1 - ((1 + 0.00458) ^-48) / 0.00458) ]

    Annuity present value = $4,303
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