Question 5 [4 points] Suppose the interest rate is 5%. You inherit a trust (a...
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Accounting
Question 5 [4 points]
Suppose the interest rate is 5%. You inherit a trust (a perpetuity) that will eventually pay you $10,000 a year forever. You will receive the first $10,000 payment exactly three years from today.
- What is the trust worth at the moment you start collecting payments (i.e. in three years from today) [1 point]
- What is the trust worth today? [1.5 points]
- A bank offers to exchange your trust for another stream of yearly payments that also lasts forever but whose first payment will be made exactly one year from today instead of three. What is the highest yearly payment that the bank is willing to offer you in exchange for your trust? [1.5 points]
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