3. You just settled an insurance claim. The settlement calls for increasing payments over a 10-year...
3. You just settled an insurance claim. The settlement calls for increasing payments over a 10-year period. The first payment will be paid one year from now in the amount of $10,000. The following payments will increase by 4.5 percent annually. What is the value of this settlement to you today if you can earn 8 percent on your investments?
Homework Answers
| PVOrdinary Annuity = C/((r-g)/100)*(1-((1+g/100)/(1+r/100))^n) |
| C = First cash flow |
| i = interest rate g = growth rate |
| n = number of payments |
| PV= 10000/((8-4.5)/(100))*(1-((1+4.5/(100))/(1+8/(100)))^(10)) |
| PV = 80192.76 |
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