Problem: Fred is entitled to the following payments. The first 12 monthly payments will be $100 each, starting one month from today. The next year's monthly payments will be constant but they will have been increased in line with inflation, which is assumed to be 1.6 % a year effective. This same pattern continues for the 15 years during which Fred will receive his payments.
Find the present value of these payments using an annual effective rate of interest of 5.9%.