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 present value of the fine is:

PV = $100,000/(1+0.035)^1 + $250,000/(1+0.035)^2 + $250,000/(1+0.035)^3
PV = $564,574.60

This amount will be invested for three years at a rate of 3.5%. The future value of this investment will be:

FV = $564,574.60 x (1+0.035)^3
FV = $615,872.50

Therefore, the national health center will receive $615,872.50 three years from today.

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