Question
3) You are negotiating the terms of a legal settlement. You have been given several different settlement options. Your average rate of return on the
3) You are negotiating the terms of a legal settlement. You have been given several different settlement options. Your average rate of return on the assets you currently hold is 5% and you expect to continue receiving that rate. You have a choice of receiving:
A lump sum today (t0) of $30,000 and payments of $5,000 at the end of the year for the next 6 years (total of 7 payments).
Equal payments of $7,500 for the next 10 years at the end of each year (total of 10 payments).
Equal payments of $17,000 starting today and continuing annually for the next 4 years (total of 5 payments).
a. What is the present value of each alternative? b. Explain why receiving money today is better than receiving the same money later?
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