Register
A trust has been established to fund scholarships in perpetuity. The next annual distribution will be $1,200, and future payments will increase by 3 percent per year. What is the value of this trust at
104,458 views
14 votes
14 votes
A trust has been established to fund scholarships in perpetuity. The next annual distribution will be $1,200, and future payments will increase by 3 percent per year. What is the value of this trust at a discount rate of 7.4 percent

User Lynell
by
2.6k points

1 Answer

17 votes
17 votes

Answer:

PV= $27,272.73

Step-by-step explanation:

Giving the following information:

Annual distribution (Cf)= $1,200

Interest rate (i)= 7.4% = 0.074

Growth rate (g)= 3% = 0.03

To calculate the present value (PV) of the fund, we need to use the following formula:

PV= Cf / (i - g)

PV= 1,200 / (0.074 - 0.03)

PV= $27,272.73

User Windo
by
3.7k points
Ask a Question
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

1.6m questions

2.0m answers

Other Questions

If the rate of inflation in Japan dramatically increases while the rate of inflation in the United States remains constant, then a. the demand curve for dollars shifts to the left. b. the demand curve
If you buy a one-year bond for $4,000 and the issuer pays you back $5,000 at the end of one year, the interest rate on the bond is
The market value of the equity of Hudgins, Inc., is $582,000. The balance sheet shows $21,000 in cash and $192,000 in debt, while the income statement has EBIT of $93,000 and a total of $137,000 in depreciation
Kylie is risk averse and has $1,000 with which to make a financial investment. She has three options. Option A is a risk-free government bond that pays 5 percent interest each year for two years. Option
From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that Group of answer choices bond interest is deductible for tax purposes. interest must be
Link Copied!