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1.A. A plaintiff in a high profile legal suit was offered the following out of court settlement: We the defendent will pay the lump sum of $135 to the plaintiff in exactly 6 years. Or, alternatively, we will negotiate a lump sum payment today.
According to time value of money, what lump sum amount today will have the same present value as the offered settlement if the interest rate of 3.7%?
B. Jackson just received a settlement in a lawsuit that promises two future payments of $380, the first payment at the end of the 9th year, and the second at the end of the 14 year. Jackson, being profligate, doesn’t want to wait and instead wants instead to spend all of the settlement money today. What is the present value of his settlement assuming the interest rate of 9%?