Question

You will receive an inheritance of $500,000 in 20 years on your 40th birthday. What is the value of the inheritance today if the discount rate is 10%?

Answer 1

The present value of future wealth is given by the following formula. Suppose $A is acquired after n years and discount rate if d. The present value of the $A is given as

$P=A(1+d)^{-n}$

Assuming A=500000 n=20 and d=0.1

$P=500000(1+0.1)^{-20}=74321.81$