fter a retiring from a successful business career, you would like to make a donation to your university. This donation will go into the school's endowment pool and the returns generated from the donation will upport the salary of a new professor in the business school on a perpetual basis. The university expects to earn returns of 5.5% on its endowment pool. You may assume that any distributions to support the alary will be made annually. art A) You can make a donation today (t=0) in the amount of $1,800,000. The first cash flow distribution from your donation to cover the professor's salary will take place in one year (at t=1). Which of the Ollowing is closest to the annual salary payment that can be made as a result of your donation? OA. $72,000 B. $1,800,000 OC. $99,000 OD. $327,273 Part B) After further discussions, the university determines that the employment agreement with the new professor will call for annual salary increases of 2%. Given this new requirement, and assuming the first salary distribution will still occur one year from today, what is the starting salary (at t=1) that can be supported with your $1,800,000 donation? OA. $135,000 OB. $63,000 OC. $36,000 OD. $100,980
fter a retiring from a successful business career, you would like to make a donation to your university. This donation will go into the school's endowment pool and the returns generated from the donation will upport the salary of a new professor in the business school on a perpetual basis. The university expects to earn returns of 5.5% on its endowment pool. You may assume that any distributions to support the alary will be made annually. art A) You can make a donation today (t=0) in the amount of $1,800,000. The first cash flow distribution from your donation to cover the professor's salary will take place in one year (at t=1). Which of the Ollowing is closest to the annual salary payment that can be made as a result of your donation? OA. $72,000 B. $1,800,000 OC. $99,000 OD. $327,273 Part B) After further discussions, the university determines that the employment agreement with the new professor will call for annual salary increases of 2%. Given this new requirement, and assuming the first salary distribution will still occur one year from today, what is the starting salary (at t=1) that can be supported with your $1,800,000 donation? OA. $135,000 OB. $63,000 OC. $36,000 OD. $100,980
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:THIS QUESTION HAS TWO PARTS
After a retiring from a successful business career, you would like to make a donation to your university. This donation will go into the school's endowment pool and the returns generated from the donation will
support the salary of a new professor in the business school on a perpetual basis. The university expects to earn returns of 5.5% on its endowment pool. You may assume that any distributions to support the
salary will be made annually.
Part A) You can make a donation today (t=0) in the amount of $1,800,000. The first cash flow distribution from your donation to cover the professor's salary will take place in one year (at t=1). Which of the
following is closest to the annual salary payment that can be made as a result of your donation?
OA. $72,000
OB. $1,800,000
OC. $99,000
OD. $327,273
Part B) After further discussions, the university determines that the employment agreement with the new professor will call for annual salary increases of 2%. Given this new requirement, and assuming the first
salary distribution will still occur one year from today, what is the starting salary (at t=1) that can be supported with your $1,800,000 donation?
OA. $135,000
OB. $63,000
OC. $36,000
OD. $100,980
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