Question

How much money must you deposit today to fund the goal of providing $125,000 a year forever for your heirs, if you can earn a guaranteed 4.5 percent rate of return?

Answer 1

To fund the goal of providing $125,000 a year forever, you would need to deposit $2,777,778 today with a guaranteed 4.5% rate of return.

Step-by-step explanation:

To calculate the amount of money that must be deposited today to fund the goal of providing $125,000 a year forever, we can use the formula for present value of perpetuity:

Present Value = Annual Payment / Interest Rate

Therefore, the amount of money that must be deposited today is $2,777,778. In this case, we divide the annual payment of $125,000 by the guaranteed 4.5% rate of return.