Your Great Aunt Left You an Inheritance in the Form

question 116

Multiple Choice

Your great aunt left you an inheritance in the form of a trust.The trust agreement states that you are to receive $2,400 on the first day of each year,starting immediately and continuing for 20 years.What is the value of this inheritance today if the applicable discount rate is 6.75 percent?

• A)$24,890.88
• B)$26,311.16
• C)$27,677.34
• D)$28,909.29
• E)$29,333.33

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Definitions:

Replacement Cost

The amount of cash or cash equivalent required to replace an asset at its current or similar utility.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Employee Benefit Liabilities

Obligations owed by an employer to its employees as part of an employee benefit program, such as pensions, post-retirement health benefits, and other forms of deferred compensation.

Present Value Method

A technique used to determine the current worth of a future cash flow, considering the time value of money.