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?

Solutions

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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