Your brother offers you $150,000 today for a claim to your future inheritance of $500,000, twenty years from today.

If the discount rate is 10%, should you accept his offer?

Question

Your brother offers you $150,000 today for a claim to your future inheritance of $500,000, twenty years from today.

If the discount rate is 10%, should you accept his offer?

inowalst · Answer

@dan815

dan815 · Answer

okay so remember what u calculated for x last time

inowalst · Answer

Yes. Okay.

dan815 · Answer

so do you think you should accept your brothers offer or not

dan815 · Answer

i mean that X value is worth 500,000 20 years later, so is that x values u found less or more than your bro is offering

inowalst · Answer

I'm not sure about this.. I mean, if my brother actually gave me that much, then I would accept it.

dan815 · Answer

look at the previous question what is X?

dan815 · Answer

what is the present value of that future 500,000

inowalst · Answer

Uhhhh.. 1.1? I don't know.

dan815 · Answer

http://prntscr.com/9dwiuu

dan815 · Answer

wait are you clear on how we got this x i can explain better if u want

inowalst · Answer

Ohhhh, yes! Sorry. Yes I know how.

dan815 · Answer

okay so x is the present value.. basically that ammount if u keep appying 10% compound interset to it every year it will become 500,000 in 20 years

dan815 · Answer

so your brother is offering you a lot more more now

dan815 · Answer

more than double,

dan815 · Answer

so it will be worth more than 1 million in 20 years

inowalst · Answer

:ooo

dan815 · Answer

because if he gave u 150,000 u know that half of that 75,000 already gives u 500,000 in the future

inowalst · Answer

Oh okay.