Disney, Inc. is expected to pay a settlement to a customer in the amount of $50,000...

Disney, Inc. is expected to pay a settlement to a customer in the amount of $50,000 a year for ten years. The equivalent settlement today is worth $1,000,000. What is the implied interest rate?

Expert Solution

Present worth of settlement = $1,000,000
Annual payment = $50,000
Period = 10 years

Let annual interest rate be i%

$1,000,000 = $50,000 * PVIFA(i%, 10)

Using financial calculator:
N = 10
PV = -1000000
PMT = 50000
FV = 0

I = -10.96%

So, implied interest rate is -10.96%

jeff jeffy answered 2 years ago

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