Question

Sam was injured in an accident, and the insurance company has offered him the choice of $49,000 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

$464,968.53

Step-by-step explanation:

Calculation to determine how large must the lump sum be to leave him as well off financially as with the annuity

Using Financial calculator to find the PRESENT VALUE (PV)

N 15 years

I/YR 7.5%

PMT $49,000 per year

FV $0

Hence;

PV= $464,968.53

Therefore how large must the lump sum be to leave him as well off financially as with the annuity is $464,968.53