You have been totally disabled and you have been offered a settlement. In addition to your lifetime medical expenses you will receive a payment of 2,500,000 today or you can receive a lifetime annuity of 150,000 a year for the rest of your life. Using a life expectancy of 82 for men and 86 for women and your age of 32, compute the net present value of the annuity if the risk free investment is 5%. Which would you choose and why?
You would choose the option that has the highest present value. This would mean that you are taking the option with the highest amount possible today.
Option 1 - 2,500,000 today. The present value is the same and is ...
The solution explains the calculation of net present value of an annuity