## Inflation Rate:

In general terms, the inflation rate measures the rate at which the general price level for a given bundle of services and products rises between two different periods. It is measured as a percentage change.

The number of periods is 10 years (30 years - 20 years), the future value is 8%, the inflation rate is 4%, and the interest rate is 8%.

The present worth of the remaining income from the trust can be estimated as:

{eq}PV = FV * \frac{(1-(100+Inflation/100)^{period})}{inflation /100}\\ PV = 5,000 * \frac{(1-(100+4/100)^{-10})}{4/100}\\ PV = 5,000 * \frac{1-(1.04^{-10})}{0.04}\\\\ PV = 5,000 * (1-0.6756) / 0.04\\ PV = 5,000 * (0.3244) / 0.04\\ PV = 5,000 * 8.110896 {/eq}

PV = 40554.48

So, it can be stated that the present worth of Ken's remaining income from the trust is \$40554.48

How to Calculate the Present Value of an Annuity

from

Chapter 8 / Lesson 3
4.9K

Learn how to find present value of annuity using the formula and see its derivation. Study its examples and see a difference between Ordinary Annuity and Annuity Due.