question archive A trust has been established to fund scholarships in perpetuity
A trust has been established to fund scholarships in perpetuity
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A trust has been established to fund scholarships in perpetuity. The next annual distribution will be $1,200 and future payments will increase by 3 percent per year. What is the value of this trust at a discount rate of 7.4 percent?
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Answer:
Formula for present value of growing perpetuity:
=D1/(r-g)
=$1,200/(.074-.03)
=$27,272.73
Value of trust=$27,272.73
