inowalst
  • inowalst
Your brother offers you $150,000 today for a claim to your future inheritance of $500,000, twenty years from today. If the discount rate is 10%, should you accept his offer?
Finance
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SOLVED
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jamiebookeater
  • jamiebookeater
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inowalst
  • inowalst
@dan815
dan815
  • dan815
okay so remember what u calculated for x last time
inowalst
  • inowalst
Yes. Okay.

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More answers

dan815
  • dan815
so do you think you should accept your brothers offer or not
dan815
  • dan815
i mean that X value is worth 500,000 20 years later, so is that x values u found less or more than your bro is offering
inowalst
  • inowalst
I'm not sure about this.. I mean, if my brother actually gave me that much, then I would accept it.
dan815
  • dan815
look at the previous question what is X?
dan815
  • dan815
what is the present value of that future 500,000
inowalst
  • inowalst
Uhhhh.. 1.1? I don't know.
dan815
  • dan815
http://prntscr.com/9dwiuu
dan815
  • dan815
wait are you clear on how we got this x i can explain better if u want
inowalst
  • inowalst
Ohhhh, yes! Sorry. Yes I know how.
dan815
  • dan815
okay so x is the present value.. basically that ammount if u keep appying 10% compound interset to it every year it will become 500,000 in 20 years
dan815
  • dan815
so your brother is offering you a lot more more now
dan815
  • dan815
more than double,
dan815
  • dan815
so it will be worth more than 1 million in 20 years
inowalst
  • inowalst
:ooo
dan815
  • dan815
because if he gave u 150,000 u know that half of that 75,000 already gives u 500,000 in the future
inowalst
  • inowalst
Oh okay.

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