You will receive a $90,000 inheritance in 7 years. You could invest money today at 7% compounded semi-annually. What is the present value of your inheritance?

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You will receive a $90,000 inheritance in 7 years. You could invest money today at 7% compounded semi-annually. What is the present value of your inheritance?

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Answer : the present value of your inheritance = $ 55,600.36

Working notes for the above answer is as follow

We have provided with the information that ,

receive a $90,000 inheritance in 7 years.

It could invest money today at 7% compounded semi-annually

the present value of your inheritance is calculated as follow

PV = Fv \left [ 1/ (1+i)n \right ]

 

FV =$90,000

Interest rate is 7 % compounded semi-annually

so i = 7/2 =3.5

we put all these figure in the sum

PV= $ 90,000 ( 1 / (1+0.035)14 )

= $ 90,000 * 0.6177

= 55600.36

Year Interest FV
$55,600.36
1 $3,960.14 $59,560.50
2 $4,242.20 $63,802.69
3 $4,544.35 $68,347.04
4 $4,868.02 $73,215.06
5 $5,214.74 $78,429.80
6 $5,586.16 $84,015.96
7 $5,984.04 $90,000.00

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