You have been awarded an insurance settlement of $250,000 that is payable one year from today.What is the minimum amount you should accept today in exchange for this settlement if you can earn 6.7 percent on your investments?

Question

Quizplus · Accepted Answer

To calculate the minimum amount that should be accepted today, we need to find the present value (PV) of $250,000. We will use the formula:

PV = FV / (1 + r)^n

Where:
FV = Future value (in one year) = $250,000
r = Rate of return = 6.7%
n = Number of years = 1

Substituting the values in the formula, we get:

PV = 250,000 / (1 + 0.067)^1
PV = 234,301.78

Therefore, the minimum amount that should be accepted today is $234,301.78. Answer choice B is correct.

You Have Been Awarded an Insurance Settlement of $250,000 That