You will receive a $250,000 inheritance in 2 years. An insurance company says it will give...

You will receive a $250,000 inheritance in 2 years. An insurance company says it will give you $210,000 today to sign over the future inheritance. If you could earn 10% on the money, would you be better off taking the deal?

Expert Solution

Option 1:

Receive $250000 inheritance in 2 years

Future value in 2 years = FV1 = $250000

Option 2:

The insurance company will give $210000 today to sign over the future inheritance

Future value of $210,000 after 2 years = FV2 = 210000*(1+r)2 = 210000*(1+10%)2 = 210000*1.12 = 254100

Future value of Option 2 is greater than that in option 2. Option 2 is more profitable i.e., 254100 > 250000

Hence we are better off in option 2 i.e., we should take the deal.

Answer -> Yes, we are better off taking the deal

jeff jeffy answered 2 years ago

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