Question

You are hurt in a car accident and your lawyer wins you a $100,000 settlement to...

You are hurt in a car accident and your lawyer wins you a $100,000 settlement to be distributed as follows:

$20,000 immediate payment

$5,000 a year for ten years (due at the end of each year)

$30,000 lump sum payment to be paid in ten years

If the lawyer's fee is $10,000 (due immediately), what is the present value of this settlement if your opportunity cost of money is 6.0%?  You must solve for the "exact" answer using the financial calculator and show ALL work (including calculator keystrokes).

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Answer #1

Present Value of Settlement = PV of Inflows - PV of Outflows = PV of all the settlements - Lawyer's Fees = PV of Annuity of $5000 + PV of $30000 + $20000 - $10000

Steps in Calculator:

1) PV of $30000 = 30000/1.06 =..=..=..=..=..=..=..=..=..=..("=" sign 10 times) Answer = 16751.843307..M+

2) PV of Annuity of $5000 = 5000/1.06 =M+..=M+..=M+..=M+..=M+..=M+..=M+..=M+..=M+..=M+..("=M+" 10 times)

3) MRC..Answer of MRC = 53552.2785633

4) +20000..-10000.. Answer = 63552.2785633

Therefore, PV of Settlement = $63552.2785633

Note: In the above 4 steps of calculator, BOLD part is to be perforemd in calculator.

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