Question
In: Accounting
our grandfather left you an inheritance of $105,000 to be paid in 30 years. At an...
our grandfather left you an inheritance of $105,000 to be paid in 30 years. At an interest rate of 11 percent, how much should you be willing to accept now in exchange for the future inheritance?
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Expert Solution
| CALCULATION OF PRESENT VALUE OF $ 1@ RATE of 11% | |||||
| Year | PVF of $ 1 @ 11 % | Year | PVF of $ 1 @ 11 % | ||
| 1 | 0.90090 | 16 | 0.18829 | ||
| 2 | 0.81162 | 17 | 0.16963 | ||
| 3 | 0.73119 | 18 | 0.15282 | ||
| 4 | 0.65873 | 19 | 0.13768 | ||
| 5 | 0.59345 | 20 | 0.12403 | ||
| 6 | 0.53464 | 21 | 0.11174 | ||
| 7 | 0.48166 | 22 | 0.10067 | ||
| 8 | 0.43393 | 23 | 0.09069 | ||
| 9 | 0.39092 | 24 | 0.08170 | ||
| 10 | 0.35218 | 25 | 0.07361 | ||
| 11 | 0.31728 | 26 | 0.06631 | ||
| 12 | 0.28584 | 27 | 0.05974 | ||
| 13 | 0.25751 | 28 | 0.05382 | ||
| 14 | 0.23199 | 29 | 0.04849 | ||
| 15 | 0.20900 | 30 | 0.04368 | ||
| CALCULATION OF PRESENT VALUE OF $ 105,000 TO BE PAID IN 30 YEARS | |||||
| PVF of $ 1 @ 11% in 30th year = | 0.04368 | ||||
| X By | "X" By | ||||
| Cash flow in year 30th | $ 1,05,000.00 | ||||
| Present Value | $ 4,586.70 | ||||
| Present Value (Round off nearest $) | $ 4,587 | ||||
| Answer = $ 4,587 | |||||
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