A court settlement awarded an accident victim four payments of $75,000 to be paid at the end of each of the next four years.Using a discount rate of 4%,calculate the present value of the annuity.

Question

Quizplus · Accepted Answer

The present value of an annuity is the sum of the present values of each of the payments. The present value of a single payment is given by the formula:PV = FV / (1 + r)^nwhere:PV is the present valueFV is the future valuer is the discount raten is the number of yearsIn this case, the future value of each payment is $75,000, the discount rate is 4%, and the number of years is 4. Therefore, the present value of each payment is:PV = $75,000 / (1 + 0.04)^4 = $63,553.40The present value of the annuity is the sum of the present values of each of the payments, which is:PV = $63,553.40 + $63,553.40 + $63,553.40 + $63,553.40 = $272,242.00Therefore, the correct answer is A) $272,242.

A Court Settlement Awarded an Accident Victim Four Payments of $75,000