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You have just won a lawsuit and, as part of the judgement, you will be receiving...

You have just won a lawsuit and, as part of the judgement, you will be receiving semi-annual payments of $25,000 over the next ten years. The first payment will occur six months from today. You plan on investing these payments and you expect to earn a return of 6% p.a. with the returns compounded monthly. The present value of this investment is closest to:

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Expert Solution

We can calculate the present value of investment by using present value (PV) of annuity formula in following manner

PV = PMT * [1-(1+i) ^-n)]/i

Where,

Present value (PV) =?

PMT = semi-annual payments = $25,000

n = N = number of payment = 2 *10 years = 20 semi-annual payments

i = I/Y = interest rate per year = 6%; therefore six-monthly interest rate= 6%/2 = 3%

Therefore,

PV = $25,000 * [1- (1+3%) ^-20]/3%

= $371,936.87

The present value of investment is $371,936.87

jeff jeffy answered 2 years ago
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