Question

A financial company advertises on television that they will pay you $60,000 now in exchange for annual payments of $8,000 that you are expected to receive for a legal settlement over the next 12 years. You estimate the time value of money at 10 percent. (a) Calculate the present value of the annual payments. Use Exhibit 1-D. (Round time value factor to 3 decimal places and final answer to the nearest whole number.)

Answer 1

Answer:

PV $54,509.5346

Explanation:

We will calcualte the present value of an annuity of 8,000 for 12 years at 10% discount rate:

The formula of annuity is:

$C \times \frac{1-(1+r)^{-time} }{rate} = PV$

C  8,000 dollars

time 12 years

rate        10% = 10/100 =  0.10

$8000 \times \frac{1-(1+0.1)^{-12} }{0.1} = PV$

PV $54,509.5346