Present Value of $100,000 under CLICO bailout plan

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The new proposals for refunds of amounts over $75,000 are that those will be repaid in equal annual payments over a 20-year period, via zero-interest bonds.

Claimants can either wait 20 years or, if they need money right now, sell their right to receive these future sums of money at a discount.  The future value of money is lower than its present value a long-time truth made powerful by the force of inflation and the threat of devaluation – the effect being that this lower value of future sums of money is shown in the discount rate applied to the right to receive these sums.

There is no way to know for sure exactly what/how the various negotiations will play out between the claimants and the people they are seeking to sell their bonds to.  There is a widespread belief that the discount rates will match the rates at which bonds are floated and that view has merit.

These are some specimen calculations for the benefit of our readers:

Notional Sum is $100,000 payable over 20 years at zero interest
Discount Rate Present Value
4% $67,952
5% $62,310
6% $57,349
7% $52,968
8% $49,090
9% $45,642
10% $42,568
15% $31,296

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