Question

Martin wants to provide money in his will for an annual bequest to whichever of his living relatives is oldest. That bequest will provide $ 1 comma 000 $1,000 in the first​ year, and will grow by 6 6​% per​ year, forever. If the interest rate is 12 12​%, how much must Martin provide to fund this​ bequest?

Answer 1

$16,667

Step-by-step explanation:

Given that

Cash flows = $1,000

Growth rate = 6%

Interest rate = 12%

So by considering the above information, the amount would be

Amount = Cash flows ÷ (Interest rate - growth rate)

= $1,000 ÷ (12% - 6%)

= $16,667

We simply applied the above formula so that the amount could come by considering the given information