Your Uncle Wants to Help You with Your College Expenses

question 27

Multiple Choice

Your uncle wants to help you with your college expenses, and he promised to pay you $10,000 next year and $15,000 in two years. The current interest rate is 6%, and you expect that this interest rate will be the same for the next year and will increase to 8% in the year after. What is the formula that you should use to compute the present discounted value of your uncle's contribution to your education expenses?

• A) 0 + 10,000 + 15,000
• B) 10,000/(1.06) + 15,000/((1.06) ∗ (1.06))
• C) 10,000/(1.06) + 15,000/((1.06)(1.08))
• D) 10,000/(1.06) + 15,000/((1.08)(1.08))

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Definitions:

Fixed Benefits Plan

A type of employee benefits plan where the benefits provided are predetermined and not based on individual performance or company profitability.

Defined Benefit Plan

A pension plan that guarantees a specified monthly benefit at retirement, which is predetermined by a formula based on the employee's earnings history, tenure of service, and age.

Annual Pension

A financial arrangement that provides individuals with a regular payment during retirement, typically based on years of service and salary history.

Benefits Systems

Organized programs offered by employers to provide their employees with financial protection and assistance in health, retirement, and other aspects of personal welfare.