Answer:
Present Value= $918,787.32
Explanation:
Giving the following information:
You just inherited a trust that will pay you $100,000 per year in perpetuity.
The first payment will not occur for exactly four more years.
Interest rate= 8%
First, we need to determine the value of the perpetual annuity in 4 years. Then, we calculate the value today.
Present value in four years:
PV= Cf/i
Cf= cash flow
PV= 100,000/0.08= $1,250,000
Now, using the following formula, we calculate the value today.
PV= FV/(1+i)^n
PV= 1,250,000/1.08^4
PV= $918,787.32
Given a certain interest rate, present value is the actual price of a prospective amount of money or series of payments.
The discount rate determines the present value of the cash flows, and the higher the coupon rate, the lower the current value of future revenues.
The value of the trust is = $918,787.32
You've recently received a bequest which will reward you $100,000 every year for the rest of your life.
The first payment will not be made for another four years.
Interest rate= 8%
Present value in four years:
PV= [tex]\frac{CF}{i}[/tex]
Cf= cash flow
PV= [tex]\frac{100000}{0.08}[/tex]= $1,250,000
Calculation of the present value:
[tex]PV= \frac{FV}{(1+i)^{n}}[/tex]
[tex]PV= \frac{1250000}{1.08^{4}}[/tex]
PV = $918,787.32
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