Question

. Due to a car accident you receive a settlement from insurance of $50 a month for the next ten years. What is that worth to you today, assuming a 3% inflation rate?

Answer 1

Answer:

Worth  of Insurance settlement $426.5

Explanation:

Present value of Insurance settlement = P [ ( 1 - ( 1+r )^-n ) / r ]

Present value of Insurance settlement = 50 [ ( 1 - ( 1 + 3% )^-10 ) / 3%]

Present value of Insurance settlement = 50 [ ( 1 - ( 1 + 0.03 )^-10 ) / 0.03]

Present value of Insurance settlement = 50 [ ( 1 - ( 1 .03 )^-10 ) / 0.03]

Present value of Insurance settlement = 50 [ ( 1 - ( 1 .03 )^-10 ) / 0.03]

Present value of Insurance settlement = 50 [ ( 1 - 0.7441 ) / 0.03]

Present value of Insurance settlement = 50 [ 0.2559 / 0.03]

Present value of Insurance settlement = 50 x 8.53

Present value of Insurance settlement = 426.5