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

PV $54,509.5346

Step-by-step 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 * (1-(1+r)^(-time) )/(rate) = PV\\`

C 8,000 dollars

time 12 years

rate 10% = 10/100 = 0.10

`8000 * (1-(1+0.1)^(-12) )/(0.1) = PV\\`

PV $54,509.5346