Question

You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take and why? you should accept the payments because they are worth $56,451.91 today. you should accept the payments because they are worth $56,523.74 today. you should accept the payments because they are worth $56,737.08 today. you should accept the $50,000 because the payments are only worth $47,757.69 today. you should accept the $50,000 because the payments are only worth $47,808.17 today.

Answer 1

Answer:

you should accept the payments because they are worth $56,451.91 today

Explanation:

We have to determinate the present value of the proposed annuity of $641 per month over a ten year spawn

Then, the value of the annuity:

$C \times \frac{1-(1+r)^{-time} }{rate} = PV$

C 641.00

time 120 (12 months x 10 years)

rate 0.005416667

$641 \times \frac{1-(1+0.00541666666666667)^{-120} }{0.00541666666666667} = PV$

PV $56,451.9083