Your parents are giving you $180 a month for 4 years while you are in college. At an interest rate of .43 percent per month, what are these payments worth to you when you first start college?

Multiple Choice

$9,573.53

$7,791.59

$7,645.09

$7,531.87

$7,402.01

This problem is a present value of an annuity calculation. The payments of $180 are being made every month for 4 years, and you want to determine their present value at the start of the 4-year period, assuming a monthly interest rate of 0.43%.

The formula for the present value of an ordinary annuity is:

\[
PV = P \times \frac{1 - (1 + r)^{-n}}{r}
\]

Where:
- $PV$ = present value
- $P$ = payment per period ($180)
- $r$ = interest rate per period (0.43% = 0.0043)
- $n$ = total number of periods (4 years × 12 months = 48 months)

Let's calculate this value.The present value of the payments is approximately **$7,791.59**, which corresponds to the second option in the list.

Would you like more details on the calculation, or have any further questions?

Here are 5 related questions:
1. How would the present value change with a different interest rate?
2. What if the payments were made at the beginning of each month instead of the end?
3. How does the number of periods affect the present value?
4. What would be the future value of these payments after 4 years?
5. How is the formula for present value derived?

**Tip:** When calculating the present value of an annuity, ensure that the interest rate and payment frequency match (monthly, annually, etc.).

Your parents are giving you $180 a month for 4 years while you are in college. At an interest rate of 0.43 percent per month, what are these payments worth to you when you first start college?

Learn how to calculate the present value of receiving $180 monthly for 4 years at an interest rate of 0.43% per month. This problem covers key finance concepts, including the present value of an annuity and the time value of money. Suitable for college-level students studying finance or economics.

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