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General Accounting Discussions: Deferred Perpetuity

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  1.  
    • CommentAuthorsnowblack
    • CommentTimeNov 19th 2009
     
    I've been struggling with this question for hours and hours.
    Hope someone can shed some light to this

    A trust fund will pay you $1,200 per month for life once you turn 18. You are currently 9. Interest rates are expected to be 4.12% compounded quarterly. What is the current value of your trust fund?

    MC answers were 244,344.29, 253,344.29, 243,344.29, 244,444.29 or 233,344.29

    I cant even get one of them.

    What I did was: Find the present value of the perpetuity
    PV = PMT/P [where p=(1+i)*c - 1]
    PV = 1200/(1+.0103)*.333333 - 1
    PV = 1200/.03342161
    PV = 350,711.50

    Then that turns into the future value of the deferred amount. I then find the present value for the 9 years deferred

    PV = FV(1+i)*-n
    PV = 350,711.50(1+0103)*-108
    PV = 350,711.50(.33064494)
    PV = 115,960.98

    It doesnt match one of the MC answers. What am I doing wrong?

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