You have a trust fund that will pay you 1
You have a trust fund that will pay you $1 million exactly 10 years from today. You want cash now, so you are considering an opportunity to sell the right to the trust fund to an investor.
a. What is the least you will sell your claim for if you could earn the following rates of return on similar-risk investments during the 10-year period?
1. 6 %
2. 9 %
3. 12 %
b. Rework part (a) under the assumption that the $1 million payment will be received in 15 rather than 10 years.
c. Based on your findings in parts (a) and (b), discuss the effect of both the size of the rate of return and the time until receipt of payment on the present value of a future sum.
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