A trust fund would be set up for the next 8 years. At the end of that period, Dr. Wolf would receive the proceeds (and discount them back to the present at 10 percent). The trust fund called for semiannual payments for the next 8 years of $200,000 (a total of $400,000 per year).
10% interest rate. What is the future value of this.?
25
Mar
Ҝendrick
March 25, 2010 at 10:26 pm
I’m assuming that this will be an annuity due, which means that the first deposit will start today, and no payment will be made on exactly the 8th year(because that’s when he’s withdrawing it.. no need to deposit if you are withdrawing it):
1) FV = $200,000[(1.05^(16+1) - 1)/.05] – $200,000
2) FV = $200,000(1.292018/.05) – $200,000
3) FV = $200,000(25.840366) – $200,000
4) FV = $4,968,073.27
This is the future value… you should be able to figure the present value from here.