Answer:
The amount of money that must be deposited to day to fund this gift is $2,568,807.34.
Explanation:
In order to determine this, we employ the formula for calculating the present value of a perpetuity since the fund is meant to provide $140,000 a year forever.
A perpetuity can be described as payments that is made or received periodically forever or indefinitely.
The formula for calculating the present value of a perpetuity is given as follows:
PV = M / i ............................. (1)
Where;
PV = the amount of money that must be deposited today = ?
M = yearly amount to receive forever = $140,000
i = expected rate of return = 5.45, or 0.0545
Substituting the values into equation (1), we have:
PV = $140,000 / 0.0545
PV = $2,568,807.34
Therefore, the amount of money that must be deposited to day to fund this gift is $2,568,807.34.
