Question

My son just entered Univ. of Michigan (Go Wolverines!!!).   His grandfather agreed to gift $100 a month for the four years that my son will be at college (Unfortunately, my wife and I are still responsible for his tuition and boarding). At an annual discount rate of 6 percent, compounded monthly, how much should the grandfather have in his bank before my son first started college?   

Group of answer choices

$4,398.70

$4,204.78

$4,099.40

$4,258.03

$4,139.66

Answer 1

Present Value Of An Annuity
= C*[1-(1+i)^-n]/i]
Where,
C= Cash Flow per period
i = interest rate per period
n=number of period
= $100[ 1-(1+0.005)^-48 /0.005]
= $100[ 1-(1.005)^-48 /0.005]
= $100[ (0.2129) ] /0.005
= $4,258.03
Correct Option : FOURTH