Answer:
Option B is correct
PV of annuity = $6,682.99
Explanation:
An annuity: A series of equal amount receivable or payable in the future for certain number of years is called an annuity. If the cash flows occurs at the end of the year , it is known as an ordinary annuity
The present value of an ordinary annuity is the amount that needs to be invested today to generate a series of equal annual cash flows in the future.
PV of ordinarily annuity= A × (1- (1+r)^(-n)/r
r= 3.7%/12= 0.308% . Monthly interest rate is annual rate divided by 12
n= 12× 4 = 48 (Note there are 12 months in a year)
A- 150
PV of annuity = 150× (1- 1.00308^(-48))/0.00308= 6,683.52
PV of annuity = $6,682.99
Answer:
Option B. $6,683
Explanation:
We can calculate the payments worth to you when you enter college by multiplying the annual amount by an annuity factor
Annuity factor can be calculated for four years as follows
DATA
Discount rate = r = 3.7%/12 = 0.00308
No. of months = 12 x 4 = 48 months
Monthly payment = $150
Future value =?
Future value = Annual payments x annuity factor
Future value = $150 x 44.5567795037(w)
Future value = $6,683
Workings
Annuity factor = [tex]\frac{1-(1+r)^-n}{r}[/tex]
Annuity factor = [tex]\frac{1-(1+0.00308)^-48}{0.00308}[/tex]
Annuity factor =44.5567795037
