Question

thorton will receive an inheritance of $500,000 three years from now. thorton's personal discount rate corresponds to a 10% interest rate compounded semiannually. which of the following values is closest to the amount that thorton should accept today for the right to his inheritance? question 17 options: $375,657 $670,048 $665,500 $373,108

Answer 1

The present value of Thorton's future inheritance is calculated using the formula for present value with a 10% semiannual discount rate over three years, resulting in approximately $373,108.

Step-by-step explanation:

To determine the present value of Thorton's inheritance, we must use the formula for the present value of a future sum, which is PV = FV / (1 + r)n, where PV is the present value, FV is the future value, r is the discount rate per period, and n is the number of periods. Given Thorton's discount rate is 10% compounded semiannually, the rate per period is 5% or 0.05, and there are 6 periods in three years (3 years * 2).

The calculation is as follows: PV = 500,000 / (1 + 0.05)6. Therefore, PV = 500,000 / (1.05)6 = 500,000 / 1.340095 = $373,108 (rounded to the nearest dollar).