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Homework answers / question archive / 1)Your uncle left you an inheritance in the form of a trust
1)Your uncle left you an inheritance in the form of a trust. The trust agreement states that you are to receive $750 each year, starting today and continuing for 25 years. What is the value of this inheritance today if the applicable discount rate is 5.8%? Multiple Choice $9,772,46 $9,989.82 $10,339.26 $10,623.33 $11,004.28
2)You are borrowing money today at a 7.5% interest rate. You will repay the principal plus all the interest in one lump sum of $7,500 two years from today. What is the amount of the loan proceeds? Multiple Choice $6,003.47 $6,166.67 $6,250.00 $6,418.30 $6,489.99
1)The amount is computed as follows:
Present value = Annual amount x [ (1 – 1 / (1 + r)n) / r ] x (1 + r)
= $ 750 x [ (1 - 1 / (1 + 0.058)25 ) / 0.058 ] x 1.058
= $ 750 x 13.02994226 x 1.058
= $ 10,339.26
2)
Loan amount = $6489.99
Explanation;
Compounded Amount = Principle amount x (1+R)^n
Rate = 7.5%
Period = 2 Years
Compounded amount = $7500
Principle amount /borrowed money = ?
so,
7500 = Principle x (1+7.5%)^2
7500 = Principle x (1.075)^2
7500 = Principle x 1.155625
Principle Amount = 7500 / 1.155625
Principle Amount = $6489.99
