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19 August, 05:47

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

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  1. 19 August, 08:52
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    PV = $8,586.15

    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
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