Question

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

Answer 1

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