The government has imposed a fine on the Not-So-Legal Company. The fine calls fo

Question

The government has imposed a fine on the Not-So-Legal Company. The fine calls for annual payments of $100,000, $250,000, and $250,000, respectively over the next three years. The first payment is due one year from today. The government plans to invest the funds until the final payment is collected and then donate the entire amount, including investment earnings, to a national health center. The government will earn 3.5% on the funds held. How much will the national health center receive three years from today?

Explanation / Answer

1st payment will earn interest for 2 years, 2nd payment for 1 year and the last payment will not earn any interest as the fund will be immediately donated.

Value at the end of 3 years = 100,000 *(1.035)^2 + 250000*1.035 + 250000

= 100000 * 1.071225 + 258750 + 250000
= 107122.5 + 258750 + 250000 = $615,872.50

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