Was Injured in an Accident, and the Insurance Company Has

question 18

Multiple Choice

was injured in an accident, and the insurance company has offered him 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 him as well off financially as with the annuity?

• A)$225,367
• B)$237,229
• C)$249,090
• D)$261,545
• E)$274,622

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Definitions:

Bondholders

Individuals or institutions that hold the debt securities issued by corporations or governmental entities, entitling them to receive interest payments and the return of principal.

Issuing Corporation

A company that sells or offers its shares to the public or to private investors.

Amortization

The process of spreading out a loan into a series of fixed payments over time, or the gradual write-off of the cost of an intangible asset over its useful life.

Bond Premium

The amount by which the market price of a bond exceeds its face value, typically resulting when market interest rates are lower than the bond's coupon rate.