Suppose that as a result of a personal injury lawsuit, Erik won a judgement for $800,000. This will not be paid out all at once, but will instead be paid in equal annual payments totalling $800,000, spread out over 20 years, starting immediately.
A finance company offers to give him a lump sum payment immediately in exchange for him signing his payments over to them. The interest rate the company uses is 8%.
How much would they give Erik as a lump sum if he takes this deal?