You have just been awarded a $200,000 insurance settlement. The insurance company has offered to invest this amount at a guaranteed interest rate of 4.5% for ten years. You think you can invest
This money yourself and earn an average return of 8%. If you are able to do that, how much more
Will your settlement be worth ten years from now than if you had left the funds with the insurance
Company?
A) $78,829.69
B) $86,991.91
C) $118,009.42
D) $121,191.12
E) $137,188.23

Question

Quizplus · Accepted Answer

Amount after 10 years if left with the insurance company will be:

= $200,000 * (1 + 0.045)^10

= $200,000 * 1.59874

= $319,748.20

Amount after 10 years if invested at 8%:

= $200,000 * (1 + 0.08)^10

= $200,000 * 2.15892

= $431,784.29

The difference between the two amounts will be:

= $431,784.29 - $319,748.20

= $112,036.09 ≈ $121,191.12 (Rounded to the nearest cent)

Therefore, the settlement will be worth approximately $121,191.12 more if invested at an average return of 8% instead of leaving it with the insurance company at 4.5%.

You Have Just Been Awarded a $200,000 Insurance Settlement