You have just learned that you are a beneficiary in the will of your late Aunt S

Question

You have just learned that you are a beneficiary in the will of your late Aunt Susan. The executrix of her estate has given you three options as to how you may receive your inheritance.

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Calculate the present value for the following assuming that the money can be invested at 12% percent. (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

You have just learned that you are a beneficiary in the will of your late Aunt Susan. The executrix of her estate has given you three options as to how you may receive your inheritance.

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Explanation / Answer

we know that A = P(1+r)^n a) P= $50,000 b) 75000 = P (1.12)^6 P = $37,998 c) P = 12000 * [ 1/1.12 + 1/1.12^2 +1/1.12^3 +1/1.12^4 +1/1.12^5 +1/1.12^6 ] = 12000 * [ 1/1.12] [1- (1/1.12)^6] / (1-1/1.12) = 12000 * [0.893] [0.493] / 0.107 = 12000* 4.113 = $49,356 So first option(a) is the best one which has high present value compared to other options

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