Answer to Question #197941 in Financial Math for Beauty Magadlela

Question

After an accident Nomfundo was awarded an amount from the Road Accident Fund as compensation for her injuries. She chose to receive R18 900 per month indefinitely. If money is worth 9,95% per year, compounded monthly, then the amount awarded is approximately

[1] R7 252 333.

[2] R6 565 554.

[3] R2 279 397.

[4] R189 950.

[5] none of the above

Answer 1

Monthly payment of R 18900 for indefinitely@9.95% p.a

Formula for present worth$=\frac{a}{i}$

Where $I=\frac{9.95}{1200}$

$a=18900$

Present value of this payment

$=\frac{18900×1200}{9.95}$

$=R 2279397$

Therefore option 3 is the right one.