Homework Answers
Future worth of the inheritence after 5 years = $70,000
Market interest rate = 6.4% per year
Cash offered by your mother at present = $61,598.64
Present value of the inheritance = $70,000*(P/F, 6.4%, 5) = $70,000 * 1/(1+6.4%)^5 = $70,000/1.064^5 = $51,332.20
The present value of the inheritance is lower than the cash offered by your mother. Therefore, you should sign over your inheritance.
Ans: You should sign over your inheritance because the present value of $70,000 to be paid in 5 years is $51,332.20
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