Question

After a golf ball struck Charl on the head he was awarded an amount from the Three Iron Fund as compensation

for his injuries. He chose to receive R18 900 per month indefinitely. If money is worth 9,95% per year,

compounded monthly, then the amount awarded equals approximately

Answer 1

If the money appreciates at a rate of 9.95% per year, then the monthly rate is 9.95/12=0.82917% approx. This means that R18900 appreciates to R19,056.71 after a month and to 18900(1.0082917)^12=R20,868.73 after a year. After 10 years the amount will be R50,910. (Sounds like a lot, doesn't it? But the cost of everything else will increase by the same proportionate amount.)

Answer 2

R = 18,900    

i = 9.95%

compounded monthly

P = R / i

   = 18,900 / (0.0995 / 12)

   = 2,279,396.98 rounding off to 2,279,397