3 Susan will receive a settlement of 125000 annually for ten

3) Susan will receive a settlement of $125,000 annually for ten years, if she trades it today for a single payment it will be discounted at 6 percent. A) How much will she receive today? B) What is the PV of her this settlement? C) What is the FV is this settlement?

Solution

a)Rate(r) = 6%, Time period (n) = 10, annuity = 125,000
The amount she will recive today = Annuity * ( 1 - ( 1+ r))^-n)/r = 125,000 * ( 1-(1+6%)^-10)/6% = 920010.88

b) The PV of her settlement = 125,000 * ( 1-(1+6%)^-10)/6% = 920010.88

c) FV of this settlement = 920010.88 * ( 1+ r) ¹⁰ = 920010.88 * ( 1+ 6%) ¹⁰ = 1647599.37

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