Question

You are in talks to settle a potential lawsuit. The defendant has offered to make annual payments of $27,000, $31,000, $64,000, and $96,000 to you each year over the next four years, respectively. All payments will be made at the end of the year. If the appropriate interest rate is 4.9 percent, what is the value of the settlement offer today

Answer 1

Answer:

$188,625.23

Explanation:

Data provided in the question:

Annual payments made : $27,000, $31,000, $64,000, and $96,000

Now,

Present value = ( Cash flow ) ÷ ( 1 + r )ⁿ

Here,

r is the interest rate = 4.9% = 0.049

n = year

thus,

Year         Cash flow           Present value

  1             $27,000              $25,738.79

  2            $31,000              $28171.55

  3            $64,000             $55443.86

  4            $96,000             $79281.03

======================================

Value of settlement today = $188,625.23