You expect to receive an inheritance of $250,000 in 5 years. You could invest that money today at 8% compounded semi-annually. What is the present value of the inheritance?
We have to discount the inheritance amount to arrive at the present value.
We discount by dividing the future value (in this case $250,000) by (1+r)^n
where r = ...
The solution calculates the Present value of a $250,000 inheritance.