When Mr. Shafer died, his estate after taxes amounted to $300,000. His will provided that Mrs. Shafer

Question:

When Mr. Shafer died, his estate after taxes amounted to $300,000. His will provided that Mrs. Shafer would receive $24.000 per year starting immediately from the principal of the estate and that the balance of the principal would pass to the Shafers’ children upon Mrs. Shafer’s death. The state law governing this estate provided for a dower option. If Mrs. Shafer elects the dower option, she renounces the will and can have one-third of the estate in cash now. The remainder will then pass immediately to their children. Mrs. Shafer wants to maximize the present value of her bequest. Should she take the or elect the dower option if she will receive 5 payments and discounts payments at
a. 8% per year?
b. 12% per year?
Required:
Using and present value techniques, including perpetuities to solve a variety of realistic problems, we give no hints as to the specific calculation with the problems.

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,... Future Value
Future value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The future value (FV) is important to investors and financial planners as they use it to estimate how much an investment made today will be worth...