You have just turned 25 and may now spend a portion of the trust fund your parents established for you.The terms of the trust fund allow you to withdraw 60 beginning-of-the-year cash flows of $100,000 each.An investment firm has offered to pay you cash for all of the fund today.If the rate they use to discount the cash flows is 16% per year,what is their offer price today for your pension fund?
A)$4,605,750,853
B)$6,000,000.00
C)$624,915.20
D)$724,901.63

Question

Quizplus · Accepted Answer

The offer price is the present value of an annuity due, calculated using the formula for the present value of an annuity due. With 60 payments of $100,000 each, discounted at 16% per year, the present value is approximately $724,901.63.

You Have Just Turned 25 and May Now Spend a Portion