Question 5 [4 points] Suppose the interest rate is 5%. You inherit a trust (a perpetuity)...

Question

Question

Question 5 [4 points] Suppose the interest rate is 5%. You inherit a trust (a perpetuity)...

Question 5 [4 points]

Suppose the interest rate is 5%. You inherit a trust (a perpetuity) that will eventually pay you $10,000 a year forever. You will receive the first $10,000 payment exactly three years from today.

What is the trust worth at the moment you start collecting payments (i.e. in three years from today) [1 point]

What is the trust worth today? [1.5 points]

A bank offers to exchange your trust for another stream of yearly payments that also lasts forever but whose first payment will be made exactly one year from today instead of three. What is the highest yearly payment that the bank is willing to offer you in exchange for your trust? [1.5 points]

business finance

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

B DE 1 Present value of annuity = Cash flow / Rate of interest Trust worth at t= 3 Rate 210000 5% mooo Trust worth today 1814

Present value of annuity = Cash flow / Rate of interest AWNA Trust worth at t = 3 Rate =10000+10000/D5 0.05 Trust worth today

B DE 1 Present value of annuity = Cash flow / Rate of interest Trust worth at t= 3 Rate 210000 5% mooo Trust worth today 181405.90 highest payment 9070.29 10 11

Add a comment

Answer 2

Similar Homework Help Questions

Question 5 [4 points] Suppose the interest rate is 5%. You inherit a trust (a perpetuity)...

Question 5 [4 points] Suppose the interest rate is 5%. You inherit a trust (a perpetuity) that will eventually pay you $10,000 a year forever. You will receive the first $10,000 payment exactly three years from today. a. What is the trust worth at the moment you start collecting payments (i.e. in three years from today) (1 point] b. What is the trust worth today? (1.5 points c. A bank offers to exchange your trust for another stream of yearly...
Suppose you inherit a perpetuity that will pay you $10,000 a year for the rest of...

Suppose you inherit a perpetuity that will pay you $10,000 a year for the rest of your life. You will receive the first $10,000 payment exactly three years from today. The interest rate is 5%. What is the perpetuity worth at the moment you start collecting payments (three years from now) What is the perpetuity worth now? A bank offers to exchange your perpetuity for another stream of yearly payments that also lasts forever but whose first payment will be made...
Interest rate with annuity. What are you getting in terms of interest rate if you are...

Interest rate with annuity. What are you getting in terms of interest rate if you are willing to pay $10,000 today for an annual stream of payments of $2,000 for the next 10 years? The next 20 years? The next 50 years? Forever? What are you getting in terms of interest rate if you are willing to pay $10,000 today for an annual stream of payments of $2,000 for the next 10 years? % (Round to two decimal places.) What...

in 8 years you will begin receiving $167 per year in perpetuity from a family trust...

in 8 years you will begin receiving $167 per year in perpetuity from a family trust (first payment is exactly 8 years from today). you have decided to discount these cash flows at a constant interest rate of 6.3%. what is the present value today of these future cash flows?
in 10 years yiu will begin receiving $184 per year in perpetuity from a family trust...

in 10 years yiu will begin receiving $184 per year in perpetuity from a family trust fund (first payment is exactly 10 years from today) you have decided to discount these cash flows at a constant interest rate of 5.9%. what is the present value today of these future cash flows?
next year you will begin receiving $189 per year in perpetuity from a family trust fund...

next year you will begin receiving $189 per year in perpetuity from a family trust fund (first payment is exactly 1 year from today) you have decided to discount these cash flows at a constant interest rate of 6.9%. what is the present value today of these future cash flows?

1. Present Value (PV): In ten years you will inherit $100,000 from your grandfather’s trust. If...

1. Present Value (PV): In ten years you will inherit $100,000 from your grandfather’s trust. If interest rates are at 5%, how much is this worth today?
Your family trust starts to provide you 5 constant annual payments of 10,000 with first payment...

Your family trust starts to provide you 5 constant annual payments of 10,000 with first payment due today. After the 5 payments, you will receive 5,000 annually in perpetuity. What’s the present value of all payments you will receive from your family trust with an appropriate discount rate of 10% p.a? a. 72,058.54 b. 72,744.72 c. 75,849.33 d. 65,849.33
next year you will begin receiving $177 per year in perpetuity from a family trust fund...

next year you will begin receiving $177 per year in perpetuity from a family trust fund (first payment is exactly 1 year from today). you have decided to discount these cash flows at a constant interest rate of 6.6% . what is the present value tofay of these future cash flows?

Question 13 (3 points) Consider a growing perpetuity that will pay $300 in one year. Each...

Question 13 (3 points) Consider a growing perpetuity that will pay $300 in one year. Each year after that, you will receive a payment on the anniversary of the last payment that is 6% larger than the last payment. This pattern of payments will continue forever. If the interest rate (discount rate) buyers of the perpetuity require is 15%, then the value of this perpetuity is closest to: Format $1,234 as 1234 Your Answer: Answer Question 14 (3 points) Nielson...

Question 5 [4 points] Suppose the interest rate is 5%. You inherit a trust (a perpetuity)...

Homework Answers

Add Answer to:
Question 5 [4 points] Suppose the interest rate is 5%. You inherit a trust (a perpetuity)...

Post as a guest

Earn Coins