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Essay text:
Your uncle died last year and left you money in his will. You are to receive $50,000 in four years (i.e., in time 4).
(a) What is the value of the inheritance today (in time 0) if the appropriate discount rate is 6% and you compound annually?
PV = (future payment)/(1+r)t
PV = (50,000)/(1+.06)4
PV = $39,604.68
(b) If you invest the money when you receive it in time 4, how much will it grow to 20 years from today (i.e., in time 20) if you earn 6% each year?
FV = PV * (1+r)t
FV = (50,000/(1+r)t) * (1+r)t
FV = (50,000/(1+.06)4) * (1+.06)20
FV = $127,017.58
3. Your neighbor is buying a new recreational vehicle (RV)...
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