Question

Geraldine was injured in a car accident, and the insurance company has offered her the choice of $25,000 per year for 15 years, with the first payment being made today, or a lump sum. If a fair return is 7.5%, how large must the lump sum be to leave her as well off financially as with the annuity

Answer 1

Answer:

Explanation:

Present value of annuity due = (1+interest rate)*Annuity[1-(1+interest rate)^ -time period]/rate

=(1+0.075)*25000*[1-(1.075)^-15]/0.075

=$25000*9.489153726  

=$237,228.84