Margaret will receive an insurance settlement of $3,000,000 in five years. Randall is willing to give her a lump sum today in return for the payment in five years. If current interest rates are 12% per year, how much will Margaret receive today?
A) $960,637
B) $1,702,281
C) $1,116,790
D) $1,800,000

Question

Quizplus · Accepted Answer

To find the present value of the future $3,000,000 that Margaret will receive, we use the present value formula: $PV = \frac{FV}{(1 + r)^n}$, where PV is the present value, FV is the future value, r is the annual interest rate, and n is the number of years. Plugging in the values: $PV = \frac{3,000,000}{(1 + 0.12)^5} = \frac{3,000,000}{(1.7623)} = $1,702,281$.

Margaret Will Receive an Insurance Settlement of $3,000,000 in Five