Ms. Jones, a 50-year old divorced female with no dependents, was involved in an automobile crash 20 years ago. Ms. Jones was the sole occupant of an automobile that was damaged when logs came loose from the bed of a logging truck that she was traveling behind. The logging truck driver was found to be at fault due to negligence. Ms. Jones successfully brought a claim against the logging truck driver, Mr. Smith, and the company he worked for, Acme Construction. The case was settled in December 2001, and both the plaintiff and the defendant agreed to settle all claims through a structured settlement agreement with stipulated payment obligations to Ms. Jones as follows: 

Payment type Payment Amount Payment Period Term certain payments $300 per month (increased annually by 3% - cost of living adjustment) 2/2002 – 1/2042 Lump Sum (one time) 

Payment $25,000 2/2005 

Lump Sum (one time) Payment $50,000 2/2015 

Lump Sum (one time) Payment $75,000 2/2025 

Current Facts At the time of the settlement, Ms. Jones was married to Bob Smith. In May 2005, they were divorced. Since 2005, Ms. Jones has been living on her own, and has a full-time job as a caregiver. She earns an annual income of $25,000 which is supplemented by income from her structured settlement annuity contract. Recently, her vehicle has been breaking down, and has become unreliable. She needs a vehicle to travel to and from work, as there is no public transportation in her town, and she cannot rely on others for transportation. Ms. Jones does not have good credit and has been unable to take out a loan to purchase a vehicle, nor does she have enough cash to pay for a vehicle upfront from her existing resources. Ms. Jones also has multiple home repairs that need immediate attention, including a leaking roof and a broken garage door. Ms. Jones estimates that she requires a lump sum of $30,000 to purchase a vehicle and make the needed repairs on her home.  

1. Assuming a discount rate of 9%, what portion of Ms. Jones’ Lump Sum payments does she need to give up, for CIS to provide her with a lump sum of $30,000 today? 

2. Assuming a discount rate of 9%, what portion of Ms. Jones’ Term Certain payments does she need to give up, for CIS to provide her with a lump sum of $30,000 today? 

3. Which of the above two options would you recommend for Ms. Jones, and why?