Your great aunt left you an inheritance in the form of a trust. The trust agreement states that you are to receive $2,500 on the first day of each year, starting immediately and continuing for 20 years. What is the value of this inheritance today if the applicable discount rate is 4.75 percent?

Question

Quizplus · Accepted Answer

The present value of an annuity can be calculated using the formula:
PV = Pmt x [(1 - (1 + r)^-n) / r]
Where:
PV = present value
Pmt = payment amount
r = discount rate
n = number of periods

Substituting the given values, we have:
PV = $2,500 x [(1 - (1 + 0.0475)^-20) / 0.0475] = $33,338.44

Therefore, the value of this inheritance today is $33,338.44.

Your Great Aunt Left You an Inheritance in the Form