You have been awarded an insurance settlement of $250,000 that is payable one year from today....

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Question

You have been awarded an insurance settlement of $250,000 that is payable one year from today....

You have been awarded an insurance settlement of $250,000 that is payable one year from today. What is the minimum amount you should accept today in exchange for this settlement if you can earn 6.7 percent on your investments?

Select one:

A. $238,079.19

B. $242,408.19

C. $250,000.00

D. $232,866.67

E. $234,301.78

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Answer 1

Answer #1

The minimum amount to be accepted today in exchange for this settlement is the Present Value of the insurance settlement of $250,000

The Present Value of the settlement amount = Settlement amount x Present Value Factor

= Settlement amount x [1/(1 + r)ⁿ]

= $250,000 x [1/(1 + 0.067)¹]

= $250,000 x 0.93721

= $234,301.78

“Therefore, the minimum amount to be accepted today in exchange for this settlement would be (E). $234,301.78”

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Answer 2

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You have been awarded an insurance settlement of $250,000 that is payable one year from today....

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