Your aunt in her will left you the sum of $5000 a year forever with payments starting immediately. However, the news is better. She has specified that the amount should grow at 5% per year to maintain purchasing power. Given an interest rate of 12% . (1) what is the PV of the inheritance.

Your aunt in her will left you the sum of $5000 a year forever with payments starting immediately. However, the news is better. She has specified that the amount should grow at 5% per year to maintain purchasing power. Given an interest rate of 12% . (1) what is the PV of the inheritance.

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter27: Time Value Of Money (compound)

Section: Chapter Questions

Problem 10E

See similar textbooks

Related questions

Q: You have just inherited $560,000. You plan to save this money and continue to live off the money…

A: Present Value = pv = $560,000Interest Rate = r = 5.46%Future Value = fv = $1 million

Q: Suppose Ted deposits $10,000 in a savings plan earning 5% compounded annually and Tess deposits…

A: Future value The value of the current investment on a future date is called the future value. The…

Q: Mary is going to receive a 33-year annuity of $9,800 per year. Nancy is going to receive a…

A: Cash flow:Cashflow is the vital circulatory system that fuels the operational engine of any…

Q: An aunt gifts you with $12,000, but only after you invest it for one year. She gives you two…

A: INTEREST RATE 4.2% 7.1% PERIOD 12 12 PMT 0 1000 PRESENT VALUE $12,000 0

Q: Your sister paid $10,000 (CF at t = 0) for an investment that promises to pay $750 at the end of…

A: The expected return is the estimation of profit or loss that an investor determines from his…

Q: Please solve this by using a number line

A: Net Present Value - It is the difference between the present value of cash outflow and present value…

Q: To double the money you received from your grandparents, it will take years. (Round to one decimal…

A: The future value of an investment forecasts the expected value of an investment at a given future…

Q: Suppose that you expect to receive an inheritance of £10,000 in one year. You will want to put this…

A: A Forward Rate Agreement (FRA) is a financial derivative that enables parties to lock in a…

Q: ou invest $2000 today at 7% per year. If you leave this for your grandchildren by not touching the…

A: Worth of money changes with passage of time as money has the power to earn interest.To compute…

Q: You expect to receive an inheritance of $50,000 (actual) six years from now. What is its present…

A: Given:Receiving an amount of $50000 six years from nowreal interest rate=4% per yearInflation…

Q: If you desire to have $15,000 for a down payment for a house in six years, what amount would you…

A: The estimation of future discounted cash flows is done through present value analysis. When…

Question

(1) what is the PV of the inheritance.

Definition Definition Value of one unit of currency in terms of goods and services. Purchasing power refers to the ability of money to purchase goods and services at a particular point of time. As price levels in the economy increase, the purchasing power of one unit of currency decreases and vice versa.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

You are hoping to buy a house in the future and recently received an inheritance of $16, 000. You intend to use your inheritance as a down payment on your house. a. If you put your inheritance in an account that earns 8 percent interest compounded annually, how many years will it be before your inheritance grows to $33, 000? b. If you let your money grow for 9.5 years at 8 percent, how much will you have? c. How long will it take your money to grow to $33, 000 if you move it into an account that pays 3 percent compounded annually? How long will it take your money to grow to $33, 000 if you move it into an account that pays 12 percent? d. What does all this tell you about the relationship among interest rates, time, and future sums?
Assume that you just inherited an annuity that will pay you $10,000 per year for 10 years, with the first payment being made today. A friend of your mother offers to give you $60,000 for the annuity. If you sell it, what rate of return would your mother’s friend earn on his investment? If you think a “fair” return would be 6%, how much should you ask for the annuity? What keys do I need to enter in a financial calculator to get the answers of (13.70%, $78,016.92)/ only show me the keys to enter in a financial calculaotr. not excel and not algebra
If you receive an inheritance of $10,000 today, how long do you have to invest it at 8% per year to be able to withdraw $2000 every year forever? Assume the 8% per year is a return that you can depend on forever.
You expect to receive an inheritance of $50,000 (actual) six years from now. What is its present worth at a real interest rate of 4% per year and an inflation rate of 3% per year. Please workout and do not use excel or if you use excel shows steps and formulas thank you!
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $3000 . Each year after that, you will receive a payment on the anniversary of the last payment that is 7% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 9% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made?
Assume that you just inherited an annuity that will pay you $10,000 per year for10 years, with the first payment being made today. A friend of your mother offersto give you $60,000 for the annuity. If you sell it, what rate of return would yourmother’s friend earn on his investment? If you think a “fair” return would be 6%, howmuch should you ask for the annuity? (13.70%, $78,016.92)
You have just inherited $560,000. You plan to save this money and continue to live off the money that you are earning in your current job. If you can invest at an interest rate of 5.46 percent annually, how long will it be before your inheritance is worth $1 million? (Round intermediate calculations to 5 decimal places, e.g. 2.51251 and final answer to 2 decimal places, e.g. 2,515.25.) Inheritance will be worth $1 million in years
You believe you will need to have saved $593,000 by the time you retire in 30 years in order to live comfortably. You also believe that you will inherit $113,000 in 5 years. (Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places.) If the interest rate is 7% per year, what is the future value of your inheritance at retirement? How much additional money must you save to meet your retirement goal, assuming you save your entire inheritance?
Your grandmother would like to share some of her fortune with you. She offers to give you money under one of the following scenarios (you get to choose): 1. $8,550 a year at the end of each of the next eight years 2. $48,350 (lump sum) now 3. $98,650 (lump sum) eight years from now Calculate the present value of each scenario using an 8% interest rate. Which scenario yields the highest present value? Would your preference change if you used a 12% interest rate? (Click the icon to view the present value annuity factor table.) (Click the icon to view the present value factor table.) (Click the icon to view the future value annuity factor table.) (Click the icon to view the future value factor table.) Using an 8% interest rate, calculate the present values for each scenario. (Round the amounts to the nearest dollar.) Present value of Scenario 1 $ 49,137 Present value of Scenario 2 $ Present value of Scenario 3 $ 48,350 53,271 Which scenario yields the highest present value? Scenario 3…
An aunt gifts you with $12,000, but only after you invest it for one year. She givesyou two choices.1. Invest the entire sum at 4.2% compounded monthly.2. Invest $1000 at 7.1% each month in an annuity that pays every month.(a) What is the future value of the money invested with method 1?(b) How much interest is earned with method 1?(c) What is the future value of the money invested with method 2?(d) How much interest is earned with method 2?(e) Which method would you choose?
You believe you will need to have saved $339,000 by the time you retire in 30 years in order to live comfortably. You also believe that you will inherit $105,000 in 5 years. (Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places.) If the interest rate is 5% per year, what is the future value of your inheritance at retirement? Future value How much additional money must you save to meet your retirement goal, assuming you save your entire inheritance? Additional savings
Your grandfather would like to share some of his fortune with you. He offers to give you money under one of the following scenarios (you get to choose): 1. $7,750 a year at the end of each of the next eight years 2. $48,350 (lump sum) now 3. $99,350 (lump sum) eight years from now Calculate the present value of each scenario using a 6% interest rate. Which scenario yields the highest present value? Would your preference change if you used a 12% interest rate? (Click the icon to view the present value annuity factor table.) factor table.) (Click the icon to view the future value annuity factor table.) factor table.) (Click the icon to view the present value (Click the icon to view the future value Using a 6% interest rate, calculate the present values for each scenario. (Round the amounts to the nearest dollar.) Present value of Scenario 1