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You win a judgment in an auto accident case for $100,000. You immediately receive $25,000 but...

You win a judgment in an auto accident case for $100,000. You immediately receive $25,000 but must pay your lawyer’s fee of $15,000. In addition, you will receive $2,500 a year for 20 years for a total of $50,000, after which the balance owed ($25,000) will be paid. If the interest rate is 7 percent, what is the current value of your settlement?

PLEASE PROVIDE WHAT TO PLUG INTO A FINANCIAL CALCULATOR AND WHAT TO SOLVE FOR. DO NOT NEED FORMULAS

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Answer #1

The given problem can be solved on a financial calculator as described below:

- Input FV = $ 25000, N = 20, PMT = $ 2500 and I/Y = 7 %

- PV = - $ 32945.51. Convert this value to a positive one by multiplying PV with - 1 to yield PV+

- Add the immediate payout of $ 25000 to PV+ and subtract the lawyer's fee of $ 15000, to arrive at the current value of the settlement which 32945.51 + 25000 - 15000 = $ 42945.51

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