by Structured Settlement Watchdog
Consumer Affairs is a pay for accreditation service that a number of structured settlement factoring companies use to elevate their standing for consumers.
Clark Kendall makes a poor attempt to explain the effective discount rate in a structured settlement factoring transaction
He says:
"The discount rate offered for a lump sum payment on a structured settlement is similar to the interest rate that consumers pay on a standard consumer loan. The company buying the settlement wants to do so at a discount in order to turn a profit. For example, if you have a $100,000 structured settlement, a company may offer you a 20 percent discount rate, meaning you will receive 20 percent less than the value of your settlement, or $80,000. The explanation belies Clark Kendall's credentials , which lists him as a Chartered Financial Analyst (CFA), Accredited Estate Planner (AEP) and Certified Financial Planner (CFP). He is the president and CEO of Kendall Capital in Washington, D.C., and a member of the Washington Society of Chartered Financial Analysts.
What a Discount Rate Actually Is
Very simply, a discount rate is the rate of return used to discount future cash flows back to their present value. Using the Present Value of a Future Sum Calculator, found at Calculator Soup, one can easily determine that the present value of $100,000 to be received one year from now, assuming at 20% discount rate is $83,333.33. Here's why it would not be $80,000 as Clark Kendall says. If you invested Clark Kendall's exemplar present value of $80,000 and it earned interest of 20% in year one, the future value would only be $96,000 ($80,000 principal plus $16,000 interest).
If we were asked to determine the Present Value of $100,000 to be received in 5 years with a 20% discount rate, the present value would be $40,187.76
It's a shame when people throw their credentials around but lack the sharpness to adequately and simply explain subject matter that their credentials suggest they should have.