Thorton will receive an inheritance of $400,000 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

The present value of Thorton's future inheritance can be calculated using the formula:

Present Value = Future Value / (1 + r/n)^(n*t)

where r is the discount rate (10%), n is the number of times interest is compounded per year (2), and t is the number of years until the inheritance is received (3).

Plugging in the values, we get:

Present Value = 400,000 / (1 + 0.1/2)^(2*3)
Present Value = 298,486.08

Therefore, the closest value to Thorton should accept today for the right to his inheritance is option C: $298,486.

Thorton Will Receive an Inheritance of $400,000 Three Years from Now.Thorton's