Joe was awarded some money as the result of a legal settlement.

Joe was awarded some money as the result of a legal settlement. He will be given $100,000 at the end of year 1 and $400,000 at the end of year 5. If the insurance company offers him a lump sum today, how much should that amount be, assuming the interest rate is 4%?

Solutions

Expert Solution

Present value=Cash flows*Present value of discounting factor(rate%,time period)

=100,000/1.04+400,000/1.04^5

which is equal to

=$424,924.69(Approx)

jeff jeffy answered 2 years ago

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