Julio has just received a legal judgment in a civil court case which awards him a settlement of $24,000 to be received two years from now. He would like to sell the rights to the settlement money to a financial institution, so that he can have the cash now. In order to estimate the present value of the settlement, he will use a discount rate of 6%. What is the present value of the settlement?

Question

Quizplus · Accepted Answer

The formula for present value of future cash flows is: PV = FV/(1+r)^n, where PV is present value, FV is future value, r is the discount rate, and n is the number of periods. In this case, FV is $24,000, r is 6%, and n is 2 years. Plugging these values into the formula gives: PV = $24,000/(1+0.06)^2 = $21,360. Therefore, the present value of the settlement is $21,360.

Julio Has Just Received a Legal Judgment in a Civil