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Homework answers / question archive / Aunt Clara has promised to leave you $200 a year starting next year and have it increase at 6% a year thereafter
Aunt Clara has promised to leave you $200 a year starting next year and have it increase at 6% a year thereafter. The payments are expected to go on indefinitely. How much has Aunt Clara left you if your opportunity cost is 10 percent?
$2,500
$3,000
$4,000
$5,000
$6,000
Computation of Amount Aunt Clara has left for you:
Amount Aunt Clara has left = Amount Left for Next Year / (Opportunity Cost - Growth Rate )
= $200 / (10% - 6% )
= $200 / 4%
Amount Aunt Clara has left = $5,000
So, the correct option is 4th "$5,000".
