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Accounting help

Posted on 2014-02-04
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Last Modified: 2014-02-04
Can someone help me out with this question:

15 years from now, you will be inheriting $75,000. What is this inheritance worth to you today if you can earn 5 percent interest compounded annually?


a. $36,017.22
b. $36,076.28
c. $36,190.98
d. $36,259.88
e. $36,346.15
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Question by:mani_sai
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Expert Comment

by:John Hurst
ID: 39832615
This is a homework question and so we cannot answer, just help.

The problem is a compound interest problem and a nice simple one at that. Your compounding period is 15 years and the rate is fixed at 5% per year.

From there, the correct answer does appear on the list above.

.... Thinkpads_User
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Author Comment

by:mani_sai
ID: 39832669
what is the formula used ?
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Accepted Solution

by:
d-glitch earned 500 total points
ID: 39832700
If you have  X dollars today,  you will have  X*(1.05) dollars in one year.

You will have  x*(1.05)²  dollars in two years.

. . . .
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Expert Comment

by:John Hurst
ID: 39832755
To give you the formula is to give you the solution. Look in your text for a compound interest formula. Compound a rate for a number of years and you should be able to solve this. We cannot do your schoolwork for you.

... Thinkpads_ User
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Author Comment

by:mani_sai
ID: 39832763
I figured.
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Author Closing Comment

by:mani_sai
ID: 39832767
d-glitch: - Thanks for your help.
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Expert Comment

by:John Hurst
ID: 39832788
To give away homework solutions is not allowed and you the asker here learned nothing. That's bad for you.
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Author Comment

by:mani_sai
ID: 39832800
I know what is good or bad to me.  you are not person to decide.
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Expert Comment

by:John Hurst
ID: 39832835
I teach people lots of things. I do know what trivial homework looks like. I repeat:  you didn't learn how to do your own work.

... Thinkpads_User
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Author Comment

by:mani_sai
ID: 39832847
Don't under estimate people here....

here is my solution:

Formula:    PV    =  FV  
FV = 75000
I = interest = 0.05
N = no of years = 15

75000  
75000(1/(1+ 0.05) ^ 15) =   36076.28
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Author Comment

by:mani_sai
ID: 39832928
Thinkpads_User :

I am sorry, I understand I should not post this type of questions.

I respect your help and tech other people in this forum.
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Expert Comment

by:d-glitch
ID: 39833010
Actually, I believe this question (and any other question you don't know how to solve) is acceptable in this forum.

And I believe the sort of help I provided (a hint not the answer or the relevant formula) is well within the ExEx guidelines.

I would always recommend thinking about the math rather than looking up a formula.
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Expert Comment

by:aburr
ID: 39833127
Another way to look at the problem (and which might lead you to the solution) is to consider the actual situation.
You are going to get some money in the future but you need it now. so you sell your inheritance.
The buyer needs to know how much to pay you. He thinks he can get 5% compounded yearly. How much should he charge. He should charge a sum which will return 75000 in 15 years. From there use the info already provided here.
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Author Comment

by:mani_sai
ID: 39833135
Thanks Guys.
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