Asked by Aliyah Grant on May 30, 2024
Verified
Your client has the following choices for an insurance benefit: She can receive $2,000 at the end of each year for the next five years or one "lump" sum today. If the current interest rate is 4.5% compounded annually, what lump payment today is equivalent to the five payments? (Taken from CIFP course materials.)
Insurance Benefit
A payment or service provided by an insurance company to the policyholder or a designated recipient under the terms of an insurance policy.
Lump Payment
Lump Payment is a single payment made at a particular time, in contrast to multiple payments made over time.
- Understand the concept of present value and how to calculate it for different financial instruments.
Verified Answer
JG
Learning Objectives
- Understand the concept of present value and how to calculate it for different financial instruments.