If I can invest at 6% per annum compounded monthly,how much will I need to invest today in order to provide an allowance of $200 per month for two years to a child commencing at boarding school two years from now? (Assume that the first monthly allowance is paid exactly two years from now.)
A)$4 512.57
B)$4 023.51
C)$4 400.14
D)$8 516.06

Question

Quizplus · Accepted Answer

To find the present value of the investment needed, we first calculate the present value of the annuity that pays $200 per month for 24 months at a monthly interest rate of 0.5% (6% annually compounded monthly). Then, we discount this amount back to the present value two years before the first payment. The correct calculation results in approximately $4,023.51.

If I Can Invest at 6% Per Annum Compounded Monthly,how