Let's apply the Time Value Of Money concepts we have been working with to a personal financial scenario.
Joe has a son and a wife. His wife is not the mother of his son. He wants to write his will so that they will be treated equitably. The son is currently 10 years old. In his will, Joe provides that $100,000 will be used to invest at the then-current interest rates. The son will receive the annual income from the investment until he is 21. At that time, the son will receive no further income from the investment. Joe wants the rest go to his wife, but he doesn't want her to get it for another 10 years after the son turns 21. Joe has his reasons. After making his will, Joe lives another 2 years and then dies. The interest rate on suitable investments at that time is 8%.
How much money will Joe's wife receive when she gets her share?
Five years after Joe dies, his widow gets antsy and decides to sell what she has coming to her from this investment to JG Wentworth. JG Wentworth pays her using a discount rate of 18%. How much money does the widow get for her share at that time?