Your parents are giving you $260 a month for 4 years while you are in college. At an interest rate of 59 percent per month, what are these payments worth to you when you first start college?
& 01.55:00
Multiple Choice

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$10,479.48


$10,298.80


$10,840.84


$14,377.84


$10,644,80

This problem is asking for the present value of a series of monthly payments ($260) over 4 years, at an interest rate of 59 percent per month. The formula to calculate the present value of an annuity is given by:

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

Where:
- $PV$ is the present value,
- $P$ is the payment amount ($260),
- $r$ is the monthly interest rate (59% = 0.59),
- $n$ is the number of payments (4 years $\times$ 12 months = 48 payments).

Let's compute this value.The present value calculation gives a result of approximately $440.68, which seems unusually low due to the very high interest rate (59% per month). This suggests the payment stream loses significant value over time because of the high interest rate.

The multiple choice answers given are all much higher, indicating they likely correspond to a much lower interest rate or reflect a misinterpretation of the problem's interest rate setup. Would you like to review this calculation or clarify any details about the interest rate? Let me know how you'd like to proceed.

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Here are 8 related questions for further exploration:
1. What is the present value of the payments if the interest rate is 5.9% instead of 59%?
2. How does the present value change if the payments last for 5 years instead of 4?
3. What if the interest rate were compounded quarterly instead of monthly?
4. How is present value affected by a decrease in the monthly payment amount?
5. What is the difference between simple and compound interest in such calculations?
6. How would inflation affect the present value of these payments?
7. What is the future value of the payments, assuming no withdrawals during the period?
8. How do you calculate the present value of a growing annuity?

**Tip:** Always double-check the interest rate interpretation (whether it’s 59% per month or 5.9%). Even small changes in rates can drastically affect outcomes.

Learn how to calculate the present value of monthly payments at a 59% interest rate over 4 years. Understand the impact of high interest rates on financial calculations.

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