Suppose Carlos has a 60 percent chance of not collecting $100,000 when his rich uncle dies in 10 years.Juanita wants to buy the rights to this possible inheritance from Carlos.How much is the possible inheritance currently worth to Carlos? Assume the interest rate is 9 percent.

Question

Quizplus · Accepted Answer

The expected value of the inheritance is $40,000 (40% of $100,000). Discounting this amount at a 9% interest rate over 10 years gives a present value of approximately $16,896.

Suppose Carlos Has a 60 Percent Chance of Not Collecting