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
