Thorton will receive an inheritance of £500,000 three years from now.Thorton's discount rate is 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

Quizplus · Accepted Answer

To find the present value of the inheritance, we use the formula for the present value of a future sum: $PV = \frac{FV}{(1 + r)^n}$, where $PV$ is the present value, $FV$ is the future value (£500,000), $r$ is the interest rate per period (10% annual rate compounded semiannually gives 5% per period or 0.05), and $n$ is the total number of periods (3 years compounded semiannually gives 6 periods). Plugging in the values, we get $PV = \frac{500,000}{(1 + 0.05)^6}$, which calculates to approximately £373,108.

Thorton Will Receive an Inheritance of £500,000 Three Years from Now.Thorton's