Question

Geraldine was injured in a car accident, and the insurance company has offered her the choice of $25,000 per year for 15 years, with the first payment being made today, or a lump sum. If a fair return is 7.5%, how large must the lump sum be to leave her as well off financially as with the annuity?
A. $225,367
B. $237,229
C. $249,090
D .$261,545
E. $274,622

Answer 1

Answer:

$237228.84

Explanation:

FV = $25,000 per year

for 15 years, with the first payment being made today, or a lump sum. If a fair return is 7.5%

we calculate present value as

PV = 25000×(1+.075)×(1-(1+.075)^-15)/0.075 = 237228.84