what is the present value of your trust fund if you have projected that it will...

what is the present value of your trust fund if you have projected that it will provide you with $50,000 9 years from today and it earns 7% compounded annually?

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Expert Solution

Here, the cash inflows will be same every year, so it is an annuity. For calculating the present value of annuity, we will use the following formula:

PVA = P * (1 - (1 + r)^-n / r)

where, PVA = Present value of annuity, P is the periodical amount = $50000, r is the rate of interest = 7% and n is the time period = 9

Now, putting these values in the above formula, we get,

PVA = $50000 * (1 - (1 + 7%)^-9 / 7%)

PVA = $50000 * (1 - ( 1+ 0.07)^-9 / 0.07)

PVA = $50000 * (1 - ( 1.07)^-9 / 0.07)

PVA = $50000 * (1 - 0.54393374258) / 0.07)

PVA = $50000 * (0.45606625741 / 0.07)

PVA = $50000* 6.5152322488

PVA = $325761.61

So, present value of trsut fund is $325761.61

jeff jeffy answered 1 year ago

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