Question

Grandma Dayhoff has set up a trust fund for her grandson Donny that will make annual payments of 50000 dollars for 17 years, starting on his 30th birthday. Today is Donny's 21st birthday, and he meets with a tax expert and learns that the IRS will charge him a tax of 12 percent of the present value of all the trust fund payments on the day he receives the first payment. (The tax is due on the day he receives the first payment.) To budget for the anticipated tax bill, Donny will make annual savings account deposits of XX dollars, the first today and the last coming on his 30th birthday. If his goal is to have exactly enough in the savings account to pay the tax bill, and we assume an effective rate of 6.5 percent throughout, how large should Donny's annual deposits be?

Answer 1