A donor of the University of Alberta wants to establish a scholarship that pays out each year (beginning next year) to a student an amount that has the same purchasing power as $ 1,000 today. Because of inflation, a dollar in one year has less purchasing power than a dollar today. We assume that the yearly inflation rate is 2%. This means that in 10 years, you will need $1.0210 to buy the same as you could today for $1. If the annual effective rate of interest is 5% compounded continuously, how much money does the donor need to fund the endowment? (Enter your answer rounded to the nearest dollar.) Answer: $
A donor of the University of Alberta wants to establish a scholarship that pays out each year (beginning next year) to a student an amount that has the same purchasing power as $ 1,000 today. Because of inflation, a dollar in one year has less purchasing power than a dollar today. We assume that the yearly inflation rate is 2%. This means that in 10 years, you will need $1.0210 to buy the same as you could today for $1. If the annual effective rate of interest is 5% compounded continuously, how much money does the donor need to fund the endowment? (Enter your answer rounded to the nearest dollar.) Answer: $
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A donor of the University of Alberta wants to establish a scholarship that pays out each year (beginning next year) to a student an amount that has the same purchasing power as $
1,000 today. Because of inflation, a dollar in one year has less purchasing power than a dollar today. We assume that the yearly inflation rate is 2%. This means that in 10 years, you will
need $1.0210 to buy the same as you could today for $1. If the annual effective rate of interest is 5% compounded continuously, how much money does the donor need to fund the
endowment? (Enter your answer rounded to the nearest dollar.)
Answer: $
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