You are in talks to settle a potential lawsuit The defendant

You are in talks to settle a potential lawsuit. The defendant has offered to make annual payments of $19,000, $27,000, $48,000, and $72,000 to you each year over the next four years, respectively. All payments will be made at the end of the year. If the appropriate interest rate is 4.1 percent, what is the value of the settlement offer today?

$153,053.53

$166,000.00

$156,512.74

$130,689.32

$147,025.49

Solution

Present value =cash flows*Present value of discounting factor(rate%,time period)

=19000/1.041+27000/1.041^2+48000/1.041^3+72000/1.041^4

(19000*0.960614793)+(27000*0.922780781)+(48000*0.886436869)+(72000*0.85152437)

=$147025.49(Approx).