Your great aunt left you an inheritance in the form of a trust. The trust agreement states that you are to receive $2,500 on the

Question

3 years ago

8

Your great aunt left you an inheritance in the form of a trust. The trust agreement states that you are to receive $2,500 on the

first day of each year, starting immediately and continuing for 20 years. What is the value of this inheritance today if the applicable discount rate is 4.75 percent

Business

1 answer:

Gala2k [10] · Answer 1 · 2022-07-20T19:59:48+03:00

Gala2k [10]3 years ago

5 0

Answer:

PV $33,338.44

Explanation:

We have to solve for the present value of an annuity-due (installment at hte beginning) of $2,500 during 20 year discounted at 4.75%

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C 2,500.00

time 20

rate 0.0475

$2500 \times \frac{1-(1+0.0475)^{-20} }{0.0475} = PV\\$

PV $33,338.4395