Question

Sam was injured in an accident, and the insurance company has offered him the choice of $45,000 per year for 15 years, with the first payment being made today, or a lump sum. If a fair return is 7.5%, how large must the lump sum be to leave him as well off financially as with the annuity?

Answer 1

Answer: $427011.92

Steps:
P = Periodic Payments
r = rate of interest
n = no of periods

Annuity PV Due (Beginning)=
P + ( P [ 1 - ( 1 + r )^-(n-1) ] / r )


45000 + 45000 * ( 1 - ((1 / (1 + 7.5%)^(15-1))))/ (7.5%)


427011.92

Answer 2

Explanation:

$427,011.92