The interest rate for an annuity Personal Finance Problem Anna Waldheim was seriously injured in an...
The interest rate for an annuity Personal Finance Problem Anna Waldheim was seriously injured in an industrial accident. She sued the responsible parties and was awarded a judgment of
$1,500,000. Today, she and her attorney are attending a settlement conference with the defendants. The defendants have made an initial offer of $119,519 per year for 24 years. Anna plans to counteroffer at $192,695 per year for 24 years. Both the offer and the counteroffer have a present value of $1,500,000, the amount of the judgment. Both assume payments at the end of each year.
a. What interest rate assumption have the defendants used in their offer (rounded to the nearest whole percent)?
b. What interest rate assumption have Anna and her lawyer used in their counteroffer (rounded to the nearest whole percent)?
c. Anna is willing to settle for an annuity that carries an interest rate assumption of 99%. What annual payment would be acceptable to her?
Homework Answers
1.
=RATE(24,-119519,1500000)
=6.0000%
2.
=RATE(24,-192695,1500000)
=12.0000%
3.
=PMT(9%,24,-1500000)
=154533.84
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The interest rate for an annuity Personal Finance
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