The Government has imposed a fine on the Not-So-Legal Company. The fine calls for annual payments of $100,000, $250,000, and $250,000, respectively over the next three years. The first payment is due one year from today. The government plans to invest the funds until the final payment is collected and then donate the entire amount, including investment earnings, to a national health center. The Government will earn 3.5% on the funds held. How much will the national health center receive three years from today?

Question

Quizplus · Accepted Answer

The future value of each payment is calculated using the formula for future value of a single sum: FV = PV * (1 + r)^n. For the first payment: FV = $100,000 * (1 + 0.035)^2 = $107,122.50. For the second payment: FV = $250,000 * (1 + 0.035)^1 = $258,750. For the third payment: FV = $250,000 (no interest as it's the final year). Adding these gives $107,122.50 + $258,750 + $250,000 = $615,872.50.

The Government Has Imposed a Fine on the Not-So-Legal Company