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You just inherited a trust that will pay you $126,000 per year in perpetuity. However the...

You just inherited a trust that will pay you $126,000 per year in perpetuity. However the first payment will occur in exactly 5 years from today. Assuming a 9.32% annual interest rate, what is the value of this trust?

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Answer #1

Value as on year 5=Annual cash flows/interest rate

=126,000/0.0932

=1,351,931.33

Hence value of trust=Value as on year 5*Present value of discounting factor(rate%,time period)

=1,351,931.33/1.0932^4

=$946,577.42(Approx).

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