Thornton will receive an inheritance of $500,000 three years from now. Thorton's discount rate is 10% compounded semiannually. Which of the following values is closest to the amount that Thornton should accept today for the right to his inheritance?
A) $373,108.
B) $375,657.
C) $665,500.
D) $670,048.
E) None of these. is within $10 of the correct answer.

Question

Quizplus · Accepted Answer

To find the present value of the inheritance, we use the formula for present value with semiannual compounding: PV = FV / (1 + r/n)^(nt). Here, FV = $500,000, r = 10% or 0.10, n = 2 (since it's compounded semiannually), and t = 3 years. Plugging in these values, PV = 500,000 / (1 + 0.10/2)^(2*3) = 500,000 / (1.05)^6 ≈ $373,108.

Thornton Will Receive an Inheritance of $500,000 Three Years from Now