What is the principal amount if a young couple receives $337.50 monthly from a trust paying 6.5% interest?

To determine the principal amount in this context, we can use the formula for calculating the monthly payment from an annuity, which is based on the principal, interest rate, and time. The monthly payment received from the trust is $337.50, and the annual interest rate is 6.5%. First, we convert the annual interest rate to a monthly rate by dividing it by 12. This results in a monthly interest rate of approximately 0.00541667 (which is 6.5% divided by 12).

The formula for the monthly payment (PMT) received from an annuity is:

PMT = P * (r / (1 - (1 + r)^-n))

Where:

• PMT is the monthly payment (in this case, $337.50)
• P is the principal amount (the amount we are solving for)
• r is the monthly interest rate (0.00541667)
• n is the total number of payments (in months)

Assuming for simplicity that the couple is receiving this monthly payment indefinitely (which occurs in a perpetuity), we can simplify our approach. In the case of a perpetuity, the formula becomes:

P = PMT / r

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