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You are the new CEO of MO Healthcare and as a result you were given a...

You are the new CEO of MO Healthcare and as a result you were given a $250,000 bonus that you can not withdraw for 7 years. If the current inflation rate is 2%, what is the current value of this bonus. The value of this illustration is _______.

You just inherited $150,000 for your great aunt MIMI, but you can not touch the money for another 25 years. Based on an inflation rate of 4%, what is the current value of this inheritance?

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Answer #1

NOTE: Inflation Rate reduces or depresses the value of an asset with the passage of time. In this context, the inflation rate will function similar to a discount rate used in determining present values of future cash flows/payments/receipts.

(a) Bonus Receipt after 7 years = $ 250000, Inflation Rate = 2 %

Current Value of Bonus Receipt = 250000 / (1.02)^(7) = $ 217640.045

(b) Inheritance Value After 25 years = $ 150000 and Inflation Rate = 4 %

Current Value of Inheritance = 150000 / (1.04)^(25) = $ 113987.677

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