Your grandparents would like to establish a trust fund that will pay you and your heirs $205,000 per year forever with the first payment 12 years from today. If the trust fund earns an annual return of 4 percent, how much must your grandparents deposit today?
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Ответ:
PV= $3,201,059.88
Explanation:
Giving the following information:
Annual cash flow= $205,000
First payment= 12 years from today
Interest rate= 4%
First, we need to calculate the value of the account 12 years from today. We need to use the following formula:
FV= Cf/ i
FV= 205,000 / 0.04
FV= $5,125,000
Now, the amount to be deposited today:
PV= FV / (1 + i)^n
PV= 5,125,000 / (1.04^12)
PV= $3,201,059.88
Ответ:
The option A is correct. The lower upfront cost is an advantage of renting a place to live.
Further Explanation:
Renting means to pay the rent for a home to live. Owning means to purchase the home. In case renting, the person who pays the rent is considered as the tenants. The person who receives money is considered as the owner. The owner has the right to sell the property, the owner only gives the right to use to tenants.
Justification for the correct and incorrect
A.
Lower upfront costs: This option is correct.
Lower upfront cost means the cost before renting or owning the home. In the case of renting, this cost is very less but in the case of owning, this cost is very high. This is the advantage of renting a place.
B.
Payment remains the same: This option is incorrect.
This is not advantaged as the payment may vary according to the rent agreement. It does not remain the same for the whole period of life.
C.
Low down payment: This option is incorrect.
This option is not correct, there is no need to pay down payment. A down payment is given in case of owning.
D.
Increasing equity over time: This option is incorrect.
The property is owned by the owner only. The equity will not increase over time. this option is incorrect.
Learn more:
1.Learn more about rental house agreement
2.Learn more about renting and owning
3.Learn more about depreciation expense
Answer details:
Grade: Middle School
Subject: Business
Chapter: Renting Vs owning
Keywords:
advantage, renting, a place to live, lower upfront costs, payment remains the same, Renting Vs owning, purchase, rent, low down payment, rental house agreement.