Question

You have received a settlement offer from an automobile manufacturer due to mechanical problems with your automobile. The manufacturer will pay you $ 16 comma 000 in one lump sum eight years from now. You can earn 8​% on your investments. The present value of the​ manufacturer's settlement offer is closest to ​(

Answer 1

Answer:

$8,644.30 ≈ $8,644

Explanation:

Data provided in the question:

Amount to be paid, A = $16,000

Interest rate that can be earned, r = 8% = 0.08

Time period, n = 8 years

Now,

A = P × ( 1 + r)ⁿ

Here,

P is the present value

thus, on substituting the respective value, we get

$16,000 = P × ( 1 + 0.08 )⁸

or

$16,000 = P ×  1.8509

or

P = $8,644.30 ≈ $8,644