Question

3) Susan will receive a settlement of $125,000 annually for ten years, if she trades it...

3) Susan will receive a settlement of $125,000 annually for ten years, if she trades it today for a single payment it will be discounted at 6 percent. A) How much will she receive today? B) What is the PV of her this settlement? C) What is the FV is this settlement?

Homework Answers

Answer #1

Annual Payment = $125,000
Discount Rate = 6%
Period = 10 years

Answer A.

Present Value of Payments = $125,000/1.06 + $125,000/1.06^2 + ... + $125,000/1.06^10
Present Value of Payments = $125,000 * (1 - (1/1.06)^10) / 0.06
Present Value of Payments = $125,000 * 7.3601
Present Value of Payments = $920,013

So, Susan will receive $920,013 today

Answer B.

Present Value of her settlement is $920,013

Answer C.

Future Value of her Settlement = $125,000*1.06^9 + $125,000*1.06^8 + $125,000*1.06^7 + ... + $125,000*1.06 + $125,000
Future Value of her Settlement = $125,000 * (1.06^10 - 1) / 0.06
Future Value of her Settlement = $125,000 * 13.1808
Future Value of her Settlement = $1,647,600

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Alma wants to have $20,000 in her investment account ten years from now. Currently, she has...
Alma wants to have $20,000 in her investment account ten years from now. Currently, she has nothing saved. How much would she have to deposit today to reach her goal if this is the only amount she invests? She expects to earn 8.5 percent, compounded annually. How much must she deposit today?
1. Julia purchased an investment grade gold coin today for $375,000. She expects it to increase...
1. Julia purchased an investment grade gold coin today for $375,000. She expects it to increase in value at a rate of 4.5% compounded annually for the next 6 years. How much will the coin be worth at the end of the sixth year? N I/Y PV PMT FV                                                                                                    2. Moon has been investing $2,500 quarterly for the past 10 years in an equity mutual fund. How much is the fund worth now assuming she has earned 8.5% compounded...
3. If $2,800 is discounted back 4 years at an interest rate of 8% compounded semi-annually,...
3. If $2,800 is discounted back 4 years at an interest rate of 8% compounded semi-annually, what would be the present value? . 4. Consider a newlywed who is planning a wedding anniversary gift of a trip to Canada for her husband at the end of 10 years. She will have enough to pay for the trip if she invests $4,000 per year until that anniversary and plans to make her first $4,000 investment on their first anniversary. Assume her...
An investment offers $10,000 at the end of each year for ten years. (a) If you...
An investment offers $10,000 at the end of each year for ten years. (a) If you can earn 5 percent annually, what is this investment worth today? (b) If you do not spend the annual payment but invest it at 5 percent, how much will you have after the ten years have lapsed?
An investment offers $10,000 at the end of each year for ten years. a. If you...
An investment offers $10,000 at the end of each year for ten years. a. If you can earn 10 percent annually, what is this investment worth today? b. If you do not spend the annual payment but invest it at 10 percent, how much will you have after the ten years have lapsed?
Shelley wants to cash in her winning lottery ticket. She can either receive sixteen $100,000 semiannual...
Shelley wants to cash in her winning lottery ticket. She can either receive sixteen $100,000 semiannual payments starting today, or she can receive a single-amount payment today based on a 6% annual interest rate. What is the single-amount payment she can receive today? Multiple Choice $801,969. $853,020. $744,090. $1,293,794.
Debra Wilcox won $6.5 million in the California lottery. She must choose how she wants the...
Debra Wilcox won $6.5 million in the California lottery. She must choose how she wants the prize to be paid to her. First, Debra can elect to receive 26 annual payments, with the first payment due immediately. Second, she can elect to receive a single payment immediately for the entire amount. However, if she elects the single payment option, the winning prize is reduced to 60% of the winning. What rate would make Deborah indifferent about these two options? 26...
Carol has an additional retirement need of $30,000 annually in today's dollars. She will retire in...
Carol has an additional retirement need of $30,000 annually in today's dollars. She will retire in 15 years and projects a retirement period of 20 years. Carol believes she can achieve a 6% after-tax rate of return and is assuming a 4% annual rate of inflation. Using the level payment approach, how much will Carol need to save in a single annual payment at the end of each year to fund her retirement need? 38,973.65 B) $36,767.56 C) $34,044.67 D)...
Suzie just won the lottery! As her prize, she will receive $2500 a month for the...
Suzie just won the lottery! As her prize, she will receive $2500 a month for the next 10 years. The first payment will be paid today. At 6%, compounded monthly, what is her prize worth today?
Susan Carver will purchase a home for $160,000. She will use a down payment of 20%...
Susan Carver will purchase a home for $160,000. She will use a down payment of 20% and finance the remaining portion at 8.4​%, compounded monthly for 15 years. Complete parts​ (a) through​ (c) below. a) What will be the monthly​ payment? (b) How much will remain on the loan after making payments for 8 years? c) What is the total amount paid over the course of 15 years?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT