Sam was injured in an accident and the insurance company has offered him the choice of...

Sam was injured in an accident and the insurance company has offered him the choice of 25,000 per year for 15 years with the first payment being made today or lump sum if a fair return is 7.5% how large must a lump-sum be to have him as well off financially as with the annuity

Expert Solution

Present value of annuity due=(1+interest rate)*Annuity[1-(1+interest rate)^-time period]/rate

=1.075*25000[1-(1.075)^-15]/0.075

=1.075*25000*8.827119745

which is equal to

=$237228.84(Approx).

jeff jeffy answered 2 years ago

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