Asked by nelly becerril on Apr 25, 2024
Verified
The Frank Trust would like to gift some money to their local university so that the money gifted will provide $100,000 to the university each year from now on. The funds are expected to earn an 8% rate of return. How much money does the Frank Trust have to gift to the university today?
A) $1,000,000
B) $1,250,000
C) $1,500,000
D) $2,000,000
E) $2,500,000
Rate of Return
The profit or loss garnered on an investment for a certain period, narrated as a percentage of the starting financial input.
University
An institution of higher education and research, which grants academic degrees in various subjects.
- Appraise the current and upcoming financial figures of singular payments, annuity series, and infinite financial installments.
- Compute the financial value of scholarships, trusts, and retirement savings in various economic environments.
Verified Answer
GS
Gurkirat singhMay 02, 2024
Final Answer :
B
Explanation :
The amount needed to provide a perpetual annual payment can be found using the formula for the present value of a perpetuity: PV = PMT / i, where PV is the present value (the amount needed today), PMT is the annual payment ($100,000), and i is the annual interest rate (8% or 0.08). Plugging in the numbers: PV = $100,000 / 0.08 = $1,250,000.
Learning Objectives
- Appraise the current and upcoming financial figures of singular payments, annuity series, and infinite financial installments.
- Compute the financial value of scholarships, trusts, and retirement savings in various economic environments.