In her will, your aunt set up a trust that is required to pay you the...

In her will, your aunt set up a trust that is required to pay you the sum of $5,000 a year forever with payments starting immediately. However, the news is better. She has specified that this $5,000 should grow at 5% per year. Given an interest rate of 12%, what is the PV of the inheritance? Please include formulas used. Thanks

Solutions

Expert Solution

The present value of inheritance

= cash flows at the end of year 1/(interest rate -growth rate)

= 5000(1+.05)/7%

= $75000

Present value of the property is $75,000.

jeff jeffy answered 2 years ago

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