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

Solutions

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

Next > < Previous

Related Solutions

You are an attorney representing a person who has become Injured in accident. The insurance company...

You are an attorney representing a person who has become Injured in accident. The insurance company agrees to a total award with a present value of $2,000,000 that will be paid out over 25 years. If the insurance company applies a discount rate of 5% to the award, what can they afford to pay your client each year? You advise your client that the insurance company should apply a 7% discount rate, what can your client now receive each year?...

Bob has been in an accident and the other party’s insurance company has offered either a...

Bob has been in an accident and the other party’s insurance company has offered either a one-time payout of $15,000, or a series of payments of $1,100 per year for 15 years. If Bob knows that the current investment rate of interest is 6%, what is the present value of the series of payments? Which should Bob take based on present values? PV = FV = I = N Pmt = Answer: ________

Assume that an uncle of yours was injured on 1/1/17 in an automobile accident. The accident...

Assume that an uncle of yours was injured on 1/1/17 in an automobile accident. The accident was serious, and it was the other driver's fault. As the result of the accident, your uncle is not able to return to his medical practice where he earned $280,000 during calendar year 2016. Your uncle's accident occurred on his 60th birthday (some birthday) and he planned (prior to the accident) to work another eight years (until the end of 2024). Your uncle has...

Part 4: 1. A woman has been injured in an automobile accident and as a result...

Part 4: 1. A woman has been injured in an automobile accident and as a result is permanently disabled for life. (The accident was not her fault.) She is 35 years of age and had planned on working until age 70. As a potential college professor, she was about to start a job that paid $50,000 annually. Using 6%, what is the amount of lost income in present-day dollars? 2. Additionally, she faces annual medical bills of $30,000, all of...

An automobile insurance company has determined the accident rate (probability of having at least one accident...

An automobile insurance company has determined the accident rate (probability of having at least one accident during a year) for various age groups (see Table). Suppose that a policyholder calls in to report an accident. What is the probability that he or she is over 60? over 60 - proportion of total insured .10 & accident rate =0.06 (erased on table and could not add it back on accident ) What is the the probability that he or she is...

Automobile Insurance Briefly describe how the tort liability system compensates injured auto accident victims? Describe three...

Automobile Insurance Briefly describe how the tort liability system compensates injured auto accident victims? Describe three circumstances under which a motorist is required to provide proof of financial responsibility to comply with financial responsibility laws. Describe the disadvantage of financial responsibility laws. Briefly describe how no-fault automobile insurance operates. Explain why no-fault auto insurance laws were developed.

Mickey Mouse was injured in a work accident on a roller coaster and as a result...

Mickey Mouse was injured in a work accident on a roller coaster and as a result is entitled to some compensation. The insurance company has offered him the choice of an annual payment each year for the next 20 years, with the first payment being made today, or a lump sum payment now of $1.5 million. If a fair return is 3.5% p.a., how large must the annual payment be to leave him as well off financially as with the...

Paul was injured in an accident. In addition to considerable discomfort, the best estimate is that...

Paul was injured in an accident. In addition to considerable discomfort, the best estimate is that his medical expense in 2009 will be $100,000. In the future, those expenses will increase at 10% per year. Paul had been earning $50,000 per year, but will only earn 80% of that in the future. Labor economists expect those in Paul's occupation to experience a 3% annual increase in earnings. Assume Paul has a 10-year work life and a 20-year expected natural life...

Sally is injured in a work accident and the court is trying to determine the discounted...

Sally is injured in a work accident and the court is trying to determine the discounted value of her future income. At the time of the accident, she was earning $50,000 a year and planned to retire in 31 years. She anticipated getting a 3% raise for the first 8 years and a 6.5% raise each year after. Assuming the payments are at the end of the year and the first is $50,000, determine the discounted value of her future...

An insurance company has compiled the accompanying data relating the age of drivers and the accident...

An insurance company has compiled the accompanying data relating the age of drivers and the accident rate (the probability of being involved in an accident during a 1-year period) for drivers within that group. Age Group Insured Drivers (%) Accident Rate (%) Under 25 16 5.5 25–44 40 3.5 45–64 30 2 65 and over 14 5 What is the probability of the following? (Round all answers to two decimal places.) (a) An insured driver selected at random will be...

Subjects