Question

Jackson just received a settlement in a lawsuit that promises two future payments of $350, the first payment at the end of the 6th year, and the second at the end of the 11 year. Jackson, being profligate, doesn't want to wait and instead wants instead to spend all of the settlement money today. What is the present value of his settlement assuming the interest rate of 9%?

Answer 1

Jackson to pay $350 first at the end of 6th year and second time at the end of 11th year.

Since, jackson wants to settle the money today, Calculating the Present Value today of Future Cashflow:-

where, Cashflow6 = Cash outflow in year end 6 = $350

Cashflow11 = Cash outflow in year end 11 = $350

r = Interest rate = 9%

Present Value = $208.69 + $135.64

Present Value = $344.33

So, the present value of his settlement is $344.33

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