Determine the present value of the geometric annuity

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A workers compensation medical claim is set up to cover medical costs for the next 13 years. It will make an initial payment at time t=0 of $11,383. Each successive payment will increase by 10.6%. Given an annual effective rate of interest of 6.8%, determine the claims reserve that needs to be set (i.e. determine the present value of the geometric annuity). Hint: Because the inflation rate is higher than the interest rate, the "real" rate of interest will be negative.

Reference no: EM131841079

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