Your grandparents would like to establish a trust fund that will pay you and your heirs $210,000 per year forever with the first payment one year from today. If the trust fund earns an annual return of 4.1 percent, how much must your grandparents deposit today?

Your grandparents would like to establish a trust fund that will pay you and your heirs $210,000 per year forever with the first payment one year from today. If the trust fund earns an annual return of 4.1 percent, how much must your grandparents deposit today?

Multiple Choice

·       

$4,268,292.68

·       

$5,121,951.22

Correct

·       

$5,853,658.54

·       

$4,481,707.32

·       

$4,727,954.97

Explanation

PV = $210,000/.041 = $5,121,951.22

An investment had a nominal return of 9.7 percent last year. If the real return on the investment was only 7.0 percent, what was the inflation rate for the year?

Multiple Choice

·       

2.80%

·       

2.46%

·       

2.52%

Correct

·       

17.38%

·       

9.92%

Explanation

h = [(1 + .097)/(1 + .070)] − 1 = .0252, or 2.52%