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Steve Smith will receive $102,400 on 5 years from now, from a trust fund established by...

Steve Smith will receive $102,400 on 5 years from now, from a trust fund established by his father. Assuming the appropriate interest rate for discounting is 12% (compounded semiannually), what is the present value of this amount today? (Round factor values to 5 decimal places, e.g. 1.25124. Round answers to the nearest whole dollar, e.g. 5,275.)

Solutions

Expert Solution

Future Value = $1,02,400

Time Period = 5 Years

Rate of Discounting = 12% (Compunded Semiannually)

Present Value = Future Value / (1+r)^n ,

where,

r = Rate of Interest = 6% (12 % Per Annum / 2 Compoundings Per Year)

n = Time Period = 10 (5 Years * 2 Compoundings Per Year)

Present Value = 1,02,400 / (1+0.06)^10

= 1,02,400 / 1.79084

= $ 57,180

ekkarill92 answered 2 years ago
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