You will recieve $8500 per year for the next 15 years from an insurance policy.

Question

You will recieve $8500 per year for the next 15 years from an insurance policy. If a 7% interest rate is applied, what is the current value of the future payments? what is the current value? Which payment would you take=the lumpsum current value or the annual payments? Describe how you solve the problem including which table for example present value and future value was used and why?

Same situation, but the amount is 1m per year for 20 years. If a 4 % interest rate applied what is the current value of the future payments?what is the current value. Which would you take lumpsum cure value or annual payments?

Explanation / Answer

Present value table of an annuity. You use the annuity table for cash flows coming in each year.

Look up 15 periods and 7% interest to find the factor: 9.108

Current value (present value) = $ 8,500 x 9.108 = $ 77,418
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The total amount received over the 15 years is $ 8,500 x 15 = $ 127,500

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