Question

17. You have just been awarded a $200,000 insurance settlement. The insurance company has offered to invest this amount at a guaranteed interest rate of 4.5% for ten years. You think you can invest this money yourself and earn an average return of 8%. If you are able to do that, how much more will your settlement be worth ten years from now than if you had left the funds with the insurance company

Answer 1

Answer:

$121191.12

Explanation:

Future value is the value of an asset at a specific date. It measures the nominal future sum of money that a given sum of money is "worth" at a specified time in the future assuming a certain interest rate, or more generally, rate of return.

Formula: FV=PV(1+r/100)^n

where

FV=future value

PV=present value  = 200,000

r=rate of interest  = 4.5%

n=time period. = 10

Insurance company

FV = 200,000*(1.045)^10

FV = 200,000*1.55296942

FV = $310593.88(Approx)

Investment by yourself

FV = 200,000*(1.08)^10

FV = 200,000*2.158925

FV = $431785

Difference= 431785-310593.88

Difference= $121191.12