Question

As a result of a court settlement, an accident victim is awarded $1.5 million. The attorney takes one-third of this amount, another third is used for immediate expenses, and the remaining third is used to set up an annuity. What amount will this annuity pay at the beginning of each quarter for the next 4 years if the annuity earns 7.9%, compounded quarterly?

Answer 1

Answer:

Explanation:

going by the given question above,

a)As the annuity pay is beginning of each year, it is annuity due

b)Present value(P)=$ 1.5/3 million= $ 0.5 million= $ 5*105

Periodic Payment When PV is known

$A=\frac{P}{\left \{ {{1-\frac{1}{(1+I)(N-1)} } \atop I}} +1 }$

i=0.072/4=0.018

N=5*4=20

x=(1+i)N-1=(1+0.018)19=1.403

A=5*105 / [ ((1- (1/1.403))/0.018)+1]

A=$ 29,485

Annuity pay at the starting of each quarter is $ 29,485