Answer: Walters should accept the immediate bonus of $71,500. See explanation below.
Explanation: In order to determine the better form of settlement, we will have to calculate the present value of $91,000 payable in 10 years, at a 4% interest rate and compare the answer with $71,500.
The formula for calculating present value (PV) is given as:
PV = C/(1 + r)^n
Where;
C = amount of money payable ($91,000)
r = percentage interest rate (4%)
n = number of years (10 years)
PV = 91,000/(1 + 0.04)^10
PV = 91,000/(1.04)^10
PV = 91,000/1.48
PV = 61,486.486
Therefore, the present value of $91,000 payable in 10 years at a 4% interest rate is approximately $61,486.50. This value is lesser than $71,500.
Hence, the form of settlement that Walters should accept is an immediate bonus of $71,500.
