You would like to establish a trust fund that will provide $120,000 a

QUESTION

You would like to establish a trust fund that will provide $120,000 a year forever for your heirs. The trust fund is going to be invested very conservatively so the expected rate of return is only 5.75 percent. How much money must you deposit today to fund this gift for your heirs?
As per the question: Annual return for the trust fund that provides the amount a year forever =$120,000 Expected rate of return =5.75% We are required to find the money that one must deposit today to fund this gift heirs. That is to find the Present value of the perpetuity. Therefore, Present value= Annual return required in $/¦

d rate of return Substituting the values, Present Value=$120,000/5.75% Present value=$2,086,956.52 Thus, money that must be deposited today to fund this giftthat will provide $120,000 a year forever to heirs is $2,086,956.52

ANSWER:

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