Determine the present value of the geometric annuity

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Reference no: EM131937602

A workers compensation medical claim is set up to cover medical costs for the next 19 years. It will make an initial payment at time t=0 of $11,980. Each successive payment will increase by 8.5%. Given an annual effective rate of interest of 4.5%, determine the claims reserve that needs to be set (i.e. determine the present value of the geometric annuity). Hint: Because the inflation rate is higher than the interest rate, the "real" rate of interest will be negative.

Reference no: EM131937602

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