Explore BrainMass

Time value of money

This content was STOLEN from BrainMass.com - View the original, and get the solution, here!

Sam was injured in an accident, and the insurance company has offered him the choice of $49,000 per year for 15 years, with the first payment being made today, or a lump sum. If a fair return is 7.5%, how large must the lump sum be to leave him as well off financially as with the annuity?

© BrainMass Inc. brainmass.com September 19, 2018, 6:48 pm ad1c9bdddf - https://brainmass.com/business/annuity/time-value-money-303425

Solution Preview

The lump sum should be the present value of annuity. In this case both the annuity and the lumpsum would be the same and so Sam would be financially as well off.
We need to ...

Solution Summary

The solution explains how to determine the amount of lump sum.