An insurance settlement offer related to an accident he had several years ago. The present value of option C $125,000 lump sum today is the highest.
Insurance is a way of managing risk. When you buy insurance, you are buying protection against unexpected financial losses. If something bad happens to you, the insurance company will pay you, or someone you choose. If you do not have insurance and an accident occurs, you can pay all related costs.
Insurance is a contract that transfers the risk of financial loss from an individual or business to an insurance company. They collect small amounts of money from their customers and pool that money to cover their losses. Insurance is divided into two main categories of property and casualty insurance.
First, we will find the present value of each option and will choose the one which has the highest present value.
we will use the PV function of excel to calculate the present value.
PV function is given by =PV(rate,nper,pmt,fv)
Rate is the periodic interest rate, nor is the number of periods, PMT is the periodic payment and fv is the future value.
In step:-1, put, rate=7% / 12, nper=84, pmt=-$1,800, fv=0
In step:-2, put, rate=7% / 12, nper=15*12=180, pmt=-$1,110, fv=0
The present value of option C will be $125,000 only because it is received today.
From, the above analysis, we observe that the present value of option C is the highest, therefore it should be selected. Option (d) is the correct statement i.e option C is the best choice because it has the largest present value.
Disclaimer:- your question is incomplete, please see below for the complete question.
A. $1800 per month for 84 months
B. $1,100 per month for 15 years
C. $125,000 lump sum today
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