5 Your grandmother has set aside 5000000 in cash to be given

5) Your grandmother has set aside $5,000,000 in cash to be given to you in the year 2028 from her trust account. Your father is willing to exchange your grandmother’s gift for cash today, at a discount rate of 12%. What is the dollar amount of your father’s offer?

Solution

Present value =future value / (1+rate)^number of years

Assuming today means 2018

So, number of years =10 years

Present value =5,000,000/ (1+0.12)^10

=5,000,000 /3.10585

= $1,609,865

Fathers offer in dollar amount =$1,609,865