12. Notes O Ask Your Inga was injured and can no longer work. As a result of a l
ID: 3199373 • Letter: 1
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12. Notes O Ask Your Inga was injured and can no longer work. As a result of a lawsuit, she is to be awarded the present value of the income she would have received over the next 15 years Her income at the time she was injured was $102,000 per year, increasing by $2,700 per year. What will be the amount of her award, assuming continuous income and a 3% interest rate? (Round your answer to the nearest cent.) s 145838567x Need Help? Max was injured and can no longer work. As a result of a lawsuit, he is to be awarded the present value of the income he would have received over the next 35 years. His income at the time he was ingured was $36,000 per year, increasing by $2,000 per year. What will be the amount of his award, assuming continuous income and 5% interest rate, (Round your answer to the nearest cent.) s101259 Need Help?Explanation / Answer
The present value formula is P/(1+r)^n where P is the Amount, r is the rate of interest per period and n is the number of periods.
Problem 1
For a period of 15 years , amount received is 102000 per annum with an incremental value of 2700 per year for the next 14 years.
The rate of interest per period is 3%.
Prepare a table for the period given as follows.
Year
income
Present Value
0
1
102000
99029.13
2
104700
98689.79
3
107400
98286.21
4
110100
97822.42
5
112800
97302.27
6
115500
96729.43
7
118200
96107.42
8
120900
95439.58
9
123600
94729.11
10
126300
93979.06
11
129000
93192.34
12
131700
92371.73
14
134400
88854.23
15
137100
87999.27
Total
1330532.00
Calculate the present value for each year with the above given formula.
The total present value is equal to 1330532.00 . This is then the award amount.
Problem 2.
For a period of 35 years , amount received is 36000 per annum with an incremental value of 2000 per year for the next 34 years.
The rate of interest per period is 5%.
Prepare a table for the period given as follows.
Year
income
Present Value
0
1
36000
34285.71
2
38000
34467.12
3
40000
34553.50
4
42000
34553.50
5
44000
34475.15
6
46000
34325.91
7
48000
34112.70
8
50000
33841.97
9
52000
33519.66
10
54000
33151.32
11
56000
32742.04
12
58000
32296.57
13
60000
31819.28
14
62000
31314.21
15
64000
30785.09
16
66000
30235.36
17
68000
29668.17
18
70000
29086.45
19
72000
28492.84
20
74000
27889.82
21
76000
27279.62
22
78000
26664.29
23
80000
26045.70
24
82000
25425.57
25
84000
24805.43
26
86000
24186.70
27
88000
23570.65
28
90000
22958.43
29
92000
22351.06
30
94000
21749.48
31
96000
21154.51
32
98000
20566.88
33
100000
19987.25
34
102000
19416.19
35
104000
18854.19
990632.37
Calculate the present value for each year with the above given formula.
The total present value is equal to 990632.37. This is then the award amount.
Year
income
Present Value
0
1
102000
99029.13
2
104700
98689.79
3
107400
98286.21
4
110100
97822.42
5
112800
97302.27
6
115500
96729.43
7
118200
96107.42
8
120900
95439.58
9
123600
94729.11
10
126300
93979.06
11
129000
93192.34
12
131700
92371.73
14
134400
88854.23
15
137100
87999.27
Total
1330532.00
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