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In: Finance

You are in a car​ accident, and you receive an insurance settlement of ​$ 4000 per...

You are in a car​ accident, and you receive an insurance settlement of ​$ 4000 per year for the next three years. The first payment is to be received today. The second payment is to be received one year from​ today, and the third payment two years from today. If the interest rate is 4​%, the present value of the insurance settlement is ​$____ .​ (Round your response to the nearest two decimal​ place)

Solutions

Expert Solution

Let the Cash Flows for Year n be denoted by CFn

Interest Rate = r = 4% or 0.04

Hence, NPV = Σ CFn/(1+r)n

Given

CF0 = 4000
CF1 = 4000
CF2 = 4000

Hence, NPV = 4000 + 4000/(1+0.04) + 4000/(1+0.04)2 = $11544.38

jeff jeffy answered 2 years ago
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