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You have a trust fund that will pay you $2 million exactly 9 years from today. You want cash now, so you are considering an opportunity to sell the right to the trust fund to an investor.
What is the least you will sell your claim for if you could earn the following rates of return (compounded annually) on similar risk investments during the ten-year period? Round your answers to nearest whole dollar.
6%
$ 716,628.1422
9%
$ 593,936.4421
12%
$ 487110.068
Rework part (a) under the assumption that the $2 million payment will be received in fifteen rather than 9 years. Round your answers to nearest whole dollar.
6%
$ 588,831.3658
9%
$ 430,803.9971
12%
$ 308,948.7424
Based on your findings in parts (a) and (b), discuss the effect of both the size of the rate of return and the time until receipt of payment on the present value of a future sum.
Answer: You receive a higher rate of return when its during the 10 year period than the 15 year period. It would take less time and make more on your investment if you were to take the10 year period. Shorter time but more bang for your investment.
Equation: PV= FV/ (1+r)^n = FV x 1/(1+4)^n
Can you please check my answers i think a couple are wrong. Thanks.
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