A brilliant young scientist is killed in a plane crash. It is anticipated that he could have earned $240,000 a year for the next 50 years. The attorney for the plaintiff's estate argues that the lost income should be discounted back to the present at 4 percent. The lawyer for the defendant's insurance company argues for a discount rate of 8 percent. What is the difference between the present value of the settlement at 4 percent and 8 percent? Compute each one separately. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. PV at 4% rate PV at 8% rate Difference Present Value
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- Imagine you are working for an insurance companies. An individual is calming 10,000$ worth of stolen objects on an insurance claim, but you suspect he may only as suffer a loss of 6,000$. You have the ability to offer a settlement. If accepted, the claim is close and the individual receives such payment. If rejected, a court will decide the payment is 6,000$ or 10,000$. If the individual really lost 10,000$, there is 60% chance the court will decide in his favor. If the individual only lost 6,000$, there is 60% chance the court will only grant him that amount. Propose a settlement amount that will allow you to figure out if the individual is lying or not. Between 7600 and 8400Marty has been offered an injury settlement of $10,000 payable in 3 years. If Marty's opportunity cost is 5%, what is the present value of the injury settlement? If Marty's opportunity cost is 8%, what is the present value of the injury settlement? If Marty's opportunity cost is 12%, what is the present value of the injury settlement?Barb Muller wins the lottery. She wins $20,000 per year to be paid for 10 years. The state offers her the choice of a cash settlement now instead of the annual payments for 10 years. If the interest rate is 6%, what is the amount the state will offer for a settlement today?
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