Currently, the bank pays an interest rate of 7% on most long-term deposits. A man has been named the beneficiary of a will. He needs your help in selecting one of the three options mentioned in the will. As per the first option, he is entitled to a sum of $20,000 per year forever during his lifetime and his estate will receive such sums even beyond his death through all future generations.

He (and his estate) will receive $10,000 next year (a year from today) and that sum will grow at 3% per year forever.

What is the value of this option?

Answer rating: 100% (QA)

To determine the value of the first option mentioned in the will we need to calculate the present va... View the full answer