Question

If the interest rate is 4%, the present value of $1400 to be received 8 years from today is $ - (Round your response to the nearest two decimal place) You are in a car accident, and you receive an insurance settlement of $5000 per year for the next three years. The first payment is to be received today. The second payment is to be received one year from today, and the third payment two years from today. If the interest rate is 5%, the present value of the insurance settlement is $____ (Round your response to the nearest two decimal place)

Answer 1

The present value of $1400 to be received 8 years from today with an interest rate of 4% is $1095.45. The present value of the insurance settlement of $5000 per year for the next three years, with an interest rate of 5%, is $13512.12.

Step-by-step explanation:

To calculate the present value of $1400 to be received 8 years from today with an interest rate of 4%, we use the formula:

Present Value = Future Value / (1 + Interest Rate)^n

Plugging in the values, we get:

Present Value = $1400 / (1 + 0.04)^8 = $1095.45 (rounded to the nearest two decimal places).

For the insurance settlement of $5000 per year for the next three years, the present value can be calculated similarly:

Present Value = Payment 1 / (1 + Interest Rate)^1 + Payment 2 / (1 + Interest Rate)^2 + Payment 3 / (1 + Interest Rate)^3

Plugging in the values, we get:

Present Value = $5000 / (1 + 0.05)^1 + $5000 / (1 + 0.05)^2 + $5000 / (1 + 0.05)^3 = $13512.12 (rounded to the nearest two decimal places).