Your parents are giving you $220 a month for 4 years while you are in college. At an interest rate of .51 percent per month, what are these payments worth to you when you first start college?

These payments worth $9,346 to me when I first start college.

Explanation:

A fix Payment for a specified period of time is called annuity. The discounting of these payment on a specified rate is known as present value of annuity.In this question the monthly payment of $220 for 4 years at 0.51% per month is an annuity.

Formula for Present value of annuity is as follow

PV of annuity = P x [ ( 1- ( 1+ r )^-n ) / r ]

Where

P = Annual payment = $220

r = rate of return = 0.51%

n = number of months = 4 years x 12 months each year = 48 months

PV of annuity = $220 x [ ( 1 - ( 1 + 0.0051 )^-48 ) / 0.0051 ]

PV of annuity = $9,345.76 = $9,346

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