Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

(1 point) Your rich uncle bequests to you a continuous, constant income stream of $7000 per year for the next 5 years. The terms of

image text in transcribed

(1 point) Your rich uncle bequests to you a continuous, constant income stream of $7000 per year for the next 5 years. The terms of the bequest require that this income stream be paid continuously into a specific savings account that will not be available to you for 5 years. This account earns 4.6% interest, compounded continuously. What is the present value of the bequest? How much money would the bequest be worth (including all interest accrued) after 5 years? You discover that a bank is offering 5.1% interest compounded continuously on a certificate of deposit (CD) that matures in 5 years. What is the cost of a CD at the above interest rate that would provide the same amount of money as the bequest after 5 years? Because the CD earns more interest than the savings account specified in the will, you feel that you are losing out on interest. So you ask the executor of the estate to use funds from the estate to buy a CD that will be worth the same as the bequeathed income stream in 15 years. You ask her to pay you today the difference between the present value of the original bequest and the amount invested in the CD. How much should she pay you today

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Advanced Operations Management

Authors: David Loader

2nd Edition

0470026545, 978-0470026540

More Books

Students also viewed these Accounting questions

Question

Explain the importance of Human Resource Management

Answered: 1 week ago

Question

Discuss the scope of Human Resource Management

Answered: 1 week ago

Question

Discuss the different types of leadership

Answered: 1 week ago

Question

Write a note on Organisation manuals

Answered: 1 week ago