Question: please answer and explain Question 20 (5 points) You have been sued. If you lose the case, you will have to pay $10,000 three years

please answer and explain

Question 20 (5 points) You have been sued. If you lose the case, you will have to pay $10,000 three years from now. If you win the case, you will not pay anything. You estimate the likelihood that you will lose the case to be 70%. The risk-free rate is 5%. An advisor suggests adding to the risk-free rate a risk premium equal to 4%, to reflect the fact that you are not certain about whether you will have to pay $10,000 or not. If you use the Expected Cash Flow Approach, which of the following is the right formula to calculate the present value? PV = $10,000 PVF (3,5%) PV = $7,000 x PVF (3,5%) PV = $7,000 x PVF (3,9%) PV - $10,000 x PVF (3,9%) PV = $7,000 x PVF (3,4%)

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