what is the present value of that stream of payments?

Question

Megan's Aunt Karroll told her that she would give Megan $1,100 at the end of each year for the next three years to help with her college expenses. Assuming an annual interest rate of 5 percent, what is the present value of that stream of payments? (Hint: Use Appendix A.4 or the Garman/Forgue companion website.) Round Present value of Series of Equal Amounts in intermediate calculations to four decimal places.

Answer 1

PV = AMT(!/i)(1-(1/(1+I)^N

Here i= 5% AMT = 1,100 and N=3 So PV= 1,100(1/5%)(1+ (1/(1.05))³)

=1,100(20)(1-(.86384))=1100(20)(.13616) =2,995.57

It is a simple formula You could go to a simple loan table with i=5%, N=3 and get the payment factor and multiply by 1,100 which Is what we did here