Adam Wilton turned 20 years old today. His grandfather had established a trust fund that will pay him $80,000 on his next birthday. However, Adam needs money today to start his college education, and his father is willing to help. Mr. Wilton has agreed to give Adam the present value of the $80,000 future cash inflow, assuming a 6 percent rate of return.
Round your figures to the nearest whole dollar.
a. Use a present value table to determine the amount of cash that Adam Wilton’s father should give him.
b. Use an algebraic formula to prove that the present value of the trust fund (the amount of cash computed in Requirement a) is equal to its $80,000 future value.