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 December 13th, 2011, 08:49 PM #1 Joined: Dec 2011 Posts: 9 Thanks: 0 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.
 December 13th, 2011, 09:08 PM #2 Global Moderator     Joined: Jul 2010 From: St. Augustine, FL., U.S.A.'s oldest city Posts: 11,555 Thanks: 101 Math Focus: The calculus 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.
 December 13th, 2011, 09:22 PM #3 Joined: Dec 2011 Posts: 9 Thanks: 0 Re: finance help sorry i'm new here. can you answer my uestion?
 December 13th, 2011, 11:02 PM #4 Joined: Apr 2011 From: USA Posts: 782 Thanks: 1 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.
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!

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.

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?  December 14th, 2011, 05:11 AM #8 Joined: Dec 2011 Posts: 9 Thanks: 0 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  December 14th, 2011, 01:23 PM #9 Global Moderator Joined: Nov 2006 From: UTC -5 Posts: 12,826 Thanks: 84 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.)  December 14th, 2011, 02:10 PM #10 Joined: Dec 2011 Posts: 9 Thanks: 0 Re: finance help for b is it n=20 or n=23?  December 14th, 2011, 02:17 PM #11 Global Moderator Joined: Nov 2006 From: UTC -5 Posts: 12,826 Thanks: 84 Re: finance help n is the number of years the amount is invested... so what will that be in this case?  December 14th, 2011, 02:20 PM #12 Joined: Dec 2011 Posts: 9 Thanks: 0 Re: finance help It would be 20 years  December 14th, 2011, 09:32 PM #13 Joined: Apr 2011 From: USA Posts: 782 Thanks: 1 Re: finance help Yes, it's 20 years. Sometimes it helps to draw a little line with the years on it, and plot in where things are happening so you can see where it all is. That includes (c). I agree with CRG about that whole life expectancy thing. That was the assumption I was referring to that you have to make. What you really need is how many years you'll live after you retire. December 14th, 2011, 09:38 PM #14 Joined: Apr 2011 From: USA Posts: 782 Thanks: 1 Re: finance help Quote: Originally Posted by Denis 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.
No, but help understanding homework is supposed to be done here. Some people are too lazy to try or learn, which is why I ask what they have attempted on it, or what they're not understanding. (I have no interest in the lazy ones who just want answers.) But some teachers suck big time and people aren't learning from them. Perhaps that's why the non-lazy ones come here.

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