Your grandmother will be gifting you $150 at the end of each month for four years while you attend college. At a discount rate of 3.7 percent, what are these payments worth to you on the day you enter college?

Question

Quizplus · Accepted Answer

To calculate the present value of the payments, we use the formula: 
PV = PMT * [1 - (1 / (1 + r)^n)] / r

Where: 
PV = Present value 
PMT = Payment amount 
r = Discount rate 
n = Number of periods

In this case, PMT = $150, r = 3.7%, and n = 48 (4 years * 12 months).

Plugging these values into the formula:

PV = $150 * [1 - (1 / (1 + 0.037)^48)] / 0.037 
PV = $6,682.99

So the answer is B, $6,682.99.

Your Grandmother Will Be Gifting You $150 at the End