You Just Inherited a Trust That Will Pay You $100,000

question 99

Multiple Choice

You just inherited a trust that will pay you $100,000 per year in perpetuity.However,the first payment will not occur for exactly four more years.Assuming a 10% annual interest rate,what is the value of this trust?

• A)$683,013
• B)$751,315
• C)$1,000,000
• D)$1,100,000

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Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds, which can include loans, bonds, or lines of credit.

Lease Term

The lease term is the fixed, non-cancellable period of time for which a lease is taken out, including any options to renew that are reasonably certain to be exercised.

Loan Covenants

Clauses in a loan agreement that require the borrower to fulfill certain conditions or restricts certain activities to protect the lender.

Operating Lease

A lease agreement that allows the use of an asset but does not convey rights of ownership to the lessee; expenses are typically reported as operating expenses in the income statement.