Joe won a settlement that will pay him $11,000 at the end ofeach year for the ne

Question

Joe won a settlement that will pay him $11,000 at the end ofeach year for the next ten years. If market interest rates arecurrently 5%, exactly how much should the court invest today,assuming end of year payments, so there will be nothing left in theaccount after the final payment is made? Please show calculations and explain the steps. THANK YOU! Joe won a settlement that will pay him $11,000 at the end ofeach year for the next ten years. If market interest rates arecurrently 5%, exactly how much should the court invest today,assuming end of year payments, so there will be nothing left in theaccount after the final payment is made? Please show calculations and explain the steps. THANK YOU!

Explanation / Answer

Payments = $11000 market interest rate = 5% PVCAF 10 years 5% = [(1 - ( 1 / (1+r)t ) ] / r                                = [ (1 - ( 1 / (1+0.05)10) ] / 0.05                                = 7.7217 Value of investment bycourt:- Present value = Payment * PVCAF 10years 5%                     = $ 11000*7.7217                     = $ 84938.70 So the present investment ofthe court = $84938.70 Payments = $11000 market interest rate = 5% PVCAF 10 years 5% = [(1 - ( 1 / (1+r)t ) ] / r                                = [ (1 - ( 1 / (1+0.05)10) ] / 0.05                                = 7.7217 Value of investment bycourt:- Present value = Payment * PVCAF 10years 5%                     = $ 11000*7.7217                     = $ 84938.70 So the present investment ofthe court = $84938.70

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