Your grandparents would like to establish a trust fund that will pay you and your heirs $120,000 per year forever with
the first payment one year from today. If the trust fund earns an annual return of 2.3 percent, how much must your
grandparents deposit today?
Multiple Choice
a. $5.217.391.30
B. $4,347,826.09
C. $4,816,053.51
D. $4,565,217.39
E. $5.962.732.92
Perpetuity refers to an annuity that has no definite period and goes on for infinity. The annuity refers to the equal amount of payments/deposits at equal interest for a specified rate. The present value of perpetuity can be calculated by dividing the periodic payments by the periodic interest rate.
Amount needed Every year Forever is $120,000
Annual interest rate is 2.3%
To Find:
- Present Value of perpetuity
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