Question

Your neighbor found out his uncle left him $450,000 which he will receive on his 18th birthday next year. If the real interest rate is 5%, what is the present value of his inheritance

Answer 1

The present value of his inheritance is $428,571.43.

What is present value?

The present value (PV) is the current value of a future stream of cash flows using a specified rate of return. To obtain the present value, the future cash flows are discounted at the discount rate.

The formula for calculating the present value is given as follows:

PV=FV  1/{(1+r)^{n}}

PV = present value

FV = future value

r = rate of return

{n} = number of periods

However, we can use an online finance calculator to determine the present value as below:

Data and Calculations:

N (# of periods) = 1 year

I/Y (Interest per year) = 5%

PMT (Periodic Payment) = $0

FV (Future Value) = $450,000

Results:

Present Value (PV) = $428,571.43

Total Interest $21,428.57

Learn more about present value at https://brainly.com/question/20813161