I need help finding the answer to this problem, I don;t know which interest rate

Question

I need help finding the answer to this problem, I don;t know which interest rate to use

When Marilyn Monroe died in 1962, ex-husband Joe DiMaggio vowed to place fresh flowers on her grave every Sunday as long as he lived, and DiMaggio lived 37 more years after her death. The week after she died, a bouquet of fresh flowers that the former baseball player though appropriate for a huge star cost $5. Assume that the stated annual interest rate (APR) is 10.4%, compounded weekly. Also assume that the price of the flowers will increase at 3.9% per year, when expressed as a stated APR, compounded weekly. If each year has 52 weeks, what is the present value of this commitment? DiMaggio began purchasing flowers the week after Monroe died.

Thank You!

Explanation / Answer

Here we have 2 steps
1. Find the FV of Annuity of PMT=$5 for 37yrsx52 weeks at Rate=3.9%/52
2. Find the PV of the Lump sum at 1 above using disc rate 10.4% for 52 weeks x37 yrs

Lets do maths as below
1. FV of anuity = FV(Rate,nper,pmt) = FV(3.9%/52,37*52,-5) = $21,540.59
2. PV of lump sum = FV/(1+i/m)^(n*m) = $21,540.59/(1+10.4%/52)^(37*52) = $461.06

So PV of the commitment is $461.06 .................Ans

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