Sell Structured Settlement Financial Considerations

Question 1

What is the 'present value' of a structured settlement payment stream?

Accepted Answer

The current worth of future payments discounted at a given rate

Answer

The total dollar amount of all future payments added together

Answer

The amount the annuity issuer paid to fund the settlement

Answer

The court-appraised value of the payments

Question 2

Why does a higher discount rate result in a lower lump-sum offer to the payee?

Accepted Answer

A higher discount rate reduces the calculated present value of future payments more aggressively

Answer

Higher rates mean more court fees are charged

Answer

Higher discount rates increase annuity issuer costs

Answer

Higher rates require larger cash reserves from the factoring company

Question 3

What typical discount rate range do factoring companies apply when purchasing structured settlement payments?

Accepted Answer

9–18%

Answer

0–3%

Answer

3–8%

Answer

25–40%

Question 4

What financial concept explains why receiving money today is considered more valuable than receiving the same amount in the future?

Accepted Answer

Time value of money

Answer

Compound interest effect only

Answer

Inflation risk premium

Answer

Liquidity preference theory

Question 5

If a payee is offered $50,000 today in exchange for payments totaling $100,000 over the next 10 years, what does this imply about the discount rate?

Accepted Answer

The discount rate is very high, significantly reducing the present value

Answer

The discount rate is 0%

Answer

The present value equals the face value

Answer

The factoring company is charging a standard fee only

Question 6

Which financial metric allows a payee to compare the cost of selling structured settlement payments to taking out a traditional loan?

Accepted Answer

Effective annual interest rate (EIR)

Answer

Gross discount percentage

Answer

Internal rate of return

Answer

Net present value