Molly will receive an insurance settlement of $2, 000, 000 in six years.Randal is willing to give her a lump sum today in return for the payment in six years.If current interest rates are 12% per year, how much will Molly receive today?
A)$ 960, 637
B)$1, 013, 262
C)$1, 116, 790
D)$1, 186, 903

Question

Quizplus · Accepted Answer

We can use the present value formula with the given information:
PV = FV/(1+r)^n, where PV is present value, FV is future value, r is the annual interest rate, and n is the number of years.
Plugging in the numbers, we have:
PV = $2,000,000/(1+0.12)^6
PV = $2,000,000/2.012
PV = $995,030.60
Therefore, Molly should receive a lump sum of $1,013,262 today from Randal.

Molly Will Receive an Insurance Settlement of $2, 000, 000