Question

Your grandparents would like to establish a trust fund that will pay you and your heirs $135,000 per year forever with the first payment one year from today. If the trust fund earns an annual return of 2.6 percent, how much must your grandparents deposit today?

Answer 1

PV= $5,192,307.70

Step-by-step explanation:

Giving the following information:

Cash flow= $135,000 per year forever

Interest rate= 2.6% = 0.026 compounded annually

To calculate the present value of the perpetual annuity, we need to use the following formula:

PV= Cf/i

PV= 135,000/0.026

PV= $5,192,307.70