Question: Consumer Insurance Inc sells extended warranties on appliances that provide
Consumer Insurance, Inc. sells extended warranties on appliances that provide coverage after the manufacturers' warranties expire. An analyst for the company forecasts that the company will have to pay warranty claims of $5 million per year for three years, with the first costs expected to occur four years from today. The company wants to set aside a lump sum today to cover these costs, and money invested today will earn 10%. How much does the firm need to invest now?
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