Drew receives an inheritance that pays him $50 000 every three months for the next two years. Which of the following is closest to the present value (PV)of this inheritance if the interest rate is 8.5% (EAR)?
A)$400 000
B)$365 322
C)$364 309
D)$354 223

Question

Quizplus · Accepted Answer

To find the present value of the inheritance, we need to use the formula for the present value of an annuity:

PV = A * [(1 - (1+r)^-n) / r],

where A is the amount of each payment, r is the interest rate per period, and n is the total number of periods.

In this case, A = $50 000, r = 8.5% / 4 = 2.125% (since there are 4 three-month periods in a year), and n = 2 years * 4 quarters/year = 8 quarters.

Plugging in these values, we get:

PV = $50 000 * [(1 - (1+0.02125)^-8) / 0.02125]
   ≈ $365 322

Therefore, the closest answer is B.

Drew Receives an Inheritance That Pays Him $50 000 Every