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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?

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facundobuzzetti

Answer:

PV= $5,192,307.70

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

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