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Your client, Anita, is hurt in a car accident and comes to you for some advice....

Your client, Anita, is hurt in a car accident and comes to you for some advice. Her lawyer wins a $100,000 settlement to be distributed as follows: $20,000 immediate payment today, $5,000 per year for ten years starting today, $30,000 balance in the tenth year. If the lawyer collects a fee of $10,000 upfront (today), what is the present value of this settlement, if Anita can earn 10% on her money?

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Answer #1

Present value = future value / (1 + interest rate)number of years

Present value of settlement = present value of payments - lawyer fee

present value of payments = $20000 + (($5000 / (1 + 10%)0) + (($5000 / (1 + 10%)1) + (($5000 / (1 + 10%)2) + (($5000 / (1 + 10%)3) + (($5000 / (1 + 10%)4) + (($5000 / (1 + 10%)5) + (($5000 / (1 + 10%)6) + (($5000 / (1 + 10%)7) + (($5000 / (1 + 10%)8) + (($5000 / (1 + 10%)9) + (($30000 / (1 + 10%)10)

present value of payments = $65,361.42

Present value of settlement =  $65,361.42 - $10,000 = $55,361.42

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