Answer:
Present Value= $180,000
Explanation:
Giving the following information:
The bequest will provide $9,000 in the first year and will grow by 5% per year, forever.
Interest rate= 10%
To calculate the present value of this perpetual annuity with a growing rate, we need to use the following formula:
PV= Cf/ (i-g)
Cf= cash flow= 9,000
i= 0.10
g= 0.5
PV= 9,000/ (0.10 - 0.05)= $180,000
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Answer:
PV= $74,999.97
Explanation:
Giving the following information:
Interest rate= 0.036/4= 0.009
Number of quarters= 5*4= 20
Future value= $89,719
We need to determine the initial inventment. We will use the following formula:
PV= FV/(1+i)^n
PV= 89,719/ (1.009^20)
PV= $74,999.97
