Question

You will receive an inheritance of $500,000 in 20 years on your 40th birthday. What is the value of the inheritance today if the discount rate is 10%?

Answer 1

$74,321.81

Step-by-step explanation:

The compounded interest equation is:

`N = P*(1+i)^n`

Where 'P' is the present value, 'i' is the discount rate, 'n' is the number of periods in years and 'N' is the future value.

If N = $500,000, n = 20 and i = 10%, the present value is:

`\$500,000 = P*(1+0.10)^(20)\\P=(\$500,000)/((1+0.10)^(20))\\P=\$74,321.81`

The value of the inheritance today is $74,321.81