Question

1.

A. You work for a company that offers structured settlements to customers. A structured settlement simply pays people a lump sum today in exchange for a stream of regular payments. Suppose Bucky was injured in an accident and settled with the defendant for an annual payment of $10,000 paid at the beginning of each of the next twenty years. Bucky has already received three of the payments, including the most recent, which was yesterday. So, he has seventeen more to go, each payable at the end of each of the next seventeen years. What would be the maximum you are willing to pay Bucky if you can borrow money at 8% APR?

B. Let’s go with Bucky again. Actually, the settlement was for $10,000 each year for the rest of his life. Bucky’s only fifteen, and you expect hat he’ll live for another seventy years. The settlement was signed yesterday, and the first payment will be made tomorrow. How much are you willing to pay him for a structured settlement if you can borrow money at 8% APR?

C. Actually, I made a mistake with Bucky’s settlement. He is to be paid $1,000 per month for the rest of his life. How much are you willing to pay him as a structured settlement if the same facts listed in question #5 still prevail?

Answer 1

Answer: 1

a) We need to calculate the present value at the payments P.V. - 10000 10000 10000 (1+APR) (1+APR)? (1 + APR) APR - 87 - Pv. = $91,216 b) Each payments happens at the beginning of the yeas Payments & $ 10,000 Numbels gy yeals - 70 P.V. - $10,000+ $10,000+ .....+ $10,000 (H+ APR) (1 + APRJ4 = $134382 c) Payment = $1000 N: 70x12840 (Numbech periods) APR = 81. Monthly Rate : 87/2 = 0.67'). Pv. = 1000 + 1000 + .....+ 1000 1+0.67%. (1+0.67%) 140.677.) PV = $ 149,706.88 Que to mortly componding we took monthly gate and monthly payments