You just won a law suit.
You will receive $1 million today plus another 10 annual payments that increase
by $275,000 per year. Thus, in one year you receive $1.275 million. In two
years, you get $1.55 million, and so on. If the appropriate interest rate is 8
percent, what is the present value of the settlement?
2. Suppose you are going
to receive $20,000 per year for five years. The appropriate interest rate is 7
percent
a. What is the present
value of the payments if they are in the form of an ordinary annuity? What is
the present value if the payments are an annuity due?
b. Suppose you plan to
invest the payments and withdraw the money in 10 years. What is the future
value if the payments are an ordinary annuity? What if the payments are an
annuity due?
