Your grandfather is retiring at the end of next year. He would like to ensure that...

Your grandfather is retiring at the end of next year. He would like to ensure that his heirs receive payments of $8,100 a year forever, starting when he retires. If he can earn 7.1 percent annually, how much does your grandfather need to invest to produce the desired cash flow? (Round answer to 2 decimal places e.g. 15.25.)

Present value of investment

Expert Solution

Applying present value of perpetuity = A/ discount rate

Therefore,

= $8100/7.1%

=$1,14,084.51

Your grandfather need to invest $1,14,084.51 to produce the desired cash flow.

jeff jeffy answered 2 years ago

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