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Jackson just received a settlement in a lawsuit that promises two future payments of $450, the first payment at the end of the 7th year, and the second at the end of the 12 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 6%

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Answer:

Total PV= $522.92

Explanation:

Giving the following information:

First payment= $450 at the end of the 7th year

Second payment= $450 at the end of the 12 year

Interest rate= 6% compounded annually

To calculate the present value, we need to use the following formula on each payment:

PV= FV/(1+i)^n

Cf1= 450/1.06^7= 299.28

Cf2= 450/1.06^12= 223.64

Total PV= $522.92

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