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December 13th, 2011, 08:49 PM   #1
 
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finance help

A wealthy relative has passed away and left an inheritance of $200,000 to you, which you will receive exactly three years from today. You plan to retire in 23 years, and you will invest this $200,000 wisely, beginning on the day you receive the funds, earning 7% per year until then.
a) What is the present value today of this inheritance assuming interest rates are currently 5%?
b) What will your retirement fund be worth on the day you retire?
c) If your life expectancy is 86 years, and you are 40 years old today, what amount will you be able to draw out each year in your retirement? Assume an interest rate during retirement years of 5%, and ignore taxes and the payment is at the end of the year.
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December 13th, 2011, 09:08 PM   #2
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Re: finance help

Please do not post your question multiple times in various sub-fora. Pick the most appropriate sub-forum for your topic and post it one time there. Two of the posts I deleted were in other folks' topics...which tends to derail a discussion and is seen as inconsiderate.

This question is the type of problem you encounter in pre-calculus study, so this is the copy I left.

Thanks for your understanding and cooperation.
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December 13th, 2011, 09:22 PM   #3
 
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Re: finance help

sorry i'm new here. can you answer my uestion?
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December 13th, 2011, 11:02 PM   #4
 
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Re: finance help

Personally I think it oughta be in the math and economics but that's me.

What have you attempted on this? There's numerous steps, about 3 different equations, one assumption, and a lot of explanation to go along with this. It would be nice to know what you do and do not understand, and kinda hone in on something. You didn't "ask a question." You posted a rather long problem.
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December 13th, 2011, 11:13 PM   #5
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Re: finance help

Quote:
Originally Posted by Erimess
Personally I think it oughta be in the math and economics but that's me...
Agreed. After looking more closely at the problem, there is no mention of the compounding period, so I would balk right there!
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December 13th, 2011, 11:21 PM   #6
 
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Re: finance help

Quote:
Originally Posted by MarkFL
there is no mention of the compounding period
It's understood to be a year.
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December 13th, 2011, 11:44 PM   #7
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Re: finance help

Quote:
Originally Posted by moralvirus
A wealthy relative has passed away and left an inheritance of $200,000 to you, which you will receive exactly three years from today.

a) What is the present value today of this inheritance assuming interest rates are currently 5%?
If you're unable to do this quite simple part, then you need help from your teacher;
homework not done here.

By the way, the other 2 parts are also quite simple. You were given no formulas?
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December 14th, 2011, 05:11 AM   #8
 
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Re: finance help

This is what I do know for part a

(n= 20, i= 5%,) and the future value is 200,000.

I just need to know if that's howI go about the problem
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December 14th, 2011, 01:23 PM   #9
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Re: finance help

For a) I'd say $200,000 * 1.05^-3 = $172,767.52; that you expect to earn 7% has no bearing on NPV.

b) is a simple calculation which you should be able to do on your own.

For c) you should write out the equation and then solve it. (I hate the wording, by the way -- that your life expectancy is 86 has no bearing on the problem. The real question is what your life expectancy would be at age 63, and we're apparently supposed to implicitly assume that those are the same.)
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December 14th, 2011, 02:10 PM   #10
 
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Re: finance help

for b is it n=20 or n=23?
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