What Is the Present Value of a Trust Fund That

question 49

Multiple Choice

What is the present value of a trust fund that earns 9% compounded monthly and pays out $950 every month into perpetuity? The next payment will be made today.

• A) $126,667
• B) $105,556
• C) $141,667
• D) $127,617
• E) $95,950

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Definitions:

Single Digit Returns

Single digit returns refer to the percentage gain or loss on an investment that is less than ten percent, indicating a low to moderate performance.

Liquidity

The ability of an asset to be quickly converted into cash without significantly affecting its price.

Default Risk

The possibility that a borrower will fail to meet the obligations of a loan agreement.

Interest Rate Risk Premiums

Additional returns demanded by investors to compensate for the risk of fluctuating interest rates.