Question

You are in talks to settle a potential lawsuit. The defendant has offered to make annual payments of $19,000, $27,000, $48,000, and $72,000 to you each year over the next four years, respectively. All payments will be made at the end of the year. If the appropriate interest rate is 4.1 percent, what is the value of the settlement offer today

Answer 1

Answer:

The value of the settlement today is $147025.49

Explanation:

The cash flows from the settlement will be received with delays of a year between each payment so we will need to discount every payment received by the appropriate discount rate which is 4.1% using appropriate time. The Present value of the payments received will be,

Present Value = 19000 / (1+0.041)  +  27000 / (1+0.041)²  +  48000 / (1+0.041)³  +  72000 / (1+0.041)^4

Present value = $147025.486 rounded off to $147025.49