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25 March, 08:01

Geraldine was injured in a car accident, and the insurance company has offered her the choice of $25,000 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 her as well off financially as with the annuity

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  1. 25 March, 08:31
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    Present value of annuity due = (1+interest rate) * Annuity[1 - (1+interest rate) ^ - time period]/rate

    = (1+0.075) * 25000*[1 - (1.075) ^-15]/0.075

    =$25000*9.489153726

    =$237,228.84
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