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Your grandparents would like to establish a trust fund that will pay you and your heirs $200,000 per year forever with the first payment one year from today. If the trust fund earns an annual return of
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Your grandparents would like to establish a trust fund that will pay you and your heirs $200,000 per year forever with the first payment one year from today. If the trust fund earns an annual return of 3.9 percent, how much must your grandparents deposit today

User RichW
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1 Answer

7 votes

Answer:

PV= $5,128,205.13

Step-by-step explanation:

Giving the following information:

Annual cash flow= $200,000

Annual rate of return= 3.9% = 0.039

We need to calculate the present value to be invested to obtain a perpetual annuity of $200,000. To determine the initial investment, we need to use the following formula:

PV= Cf / i

PV= 200,000 / 0.039

PV= $5,128,205.13

User Marian Rick
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5.1k points
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