Having achieved immense success since graduating from university, you have set up an endowment fund to which you will contribute $100,000 today, with this amount declining at a constant rate of 2% p.a. in perpetuity. If the interest rate appropriate for valuing this contribution is 10% p.a., its present value is closest to: $816,667. $933,333. $916,667. $1,375,000.

Having achieved immense success since graduating from university, you have set up an endowment fund to which you will contribute $100,000 today, with this amount declining at a constant rate of 2% p.a. in perpetuity. If the interest rate appropriate for valuing this contribution is 10% p.a., its present value is closest to: $816,667. $933,333. $916,667. $1,375,000.

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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An endowment fund is providing an annual scholarship of P50,000 for the first five years, P60,000 for the next five years, and P90,000 thereafter. The fund will be established today and will award the first scholarship after a year. The fund earns 4.5 % annual interest. Find the present worth of this cost.
What is the size of the scholarship payments that students at a college would receive at the end of every quarter if $540,000 is invested in an endowment fund that is earning 4.20% compounded quarterly? Round to the nearest cent
Present value (with changing interest rates). Marty has been offered an injury settlement of $15,000 payable in 5 years. He wants to know what the present value of the injury settlement is if his opportunity cost is 5%. (The opportunity cost is the interest rate in this problem.) What if the opportunity cost is 8%? What if it is 11.5%?
A corporation creates a sinking fund in order to have $510,000 to replace some machinery in 12 years. How much should be placed in this account at the end of each quarter if the annual interest rate is 6.3% compounded quarterly? (Round your answers to the nearest cent.) $ How much interest would they earn over the life of the account? $ Determine the value of the fund after 2, 4, and 6 years. 2 years $ 4 years $ 6 years $ How much interest was earned during the fourth quarter of the 5th year? $
A perpetuity is defined as an infinite series of equal cash flows occurring at regular intervals indefinitely. (Scholarships are an example of a perpetuity) If you want to set up a scholarship fund to support students attending domestic conferences, at an interest rate of 8%, what's the endowment value that would produce $3,000 a year in your scholarship?
Solve by using the sinking fund or amortization formula. Betty Price purchased a new home for $245,000 with a 10% down payment and the remainder amortized over a 15 year period at 9% interest. (a) What amount (in $) did Betty finance? $ (b) What equal monthly payments (in $) are required to amortize this loan over 15 years? (Round your answer to the nearest cent.) $ (c) What equal monthly payments (in $) are required if Betty decides to take a 20 year loan rather than a 15 year loan? (Round your answer to the nearest cent.) $
Could you show me formulas and solutions, thank you
10. Mr. Smart wants to set up an annual scholarship by donating $50 000 to the scholarship fund of his university. If the first payment is to be made in 5 years and interest is 4% compounded annually, what is the amount of the annual scholarship?
.You want to start a scholarship fund at your alma mater with giving one $10,000 scholarship annually beginning one year from now. And you have at most $150,000 to start the fund. You also want the scholarship to be given out indefinitely. Assuming an annual interest rate of 8% (compounded continuously , do you have enough money for the scholarship fund? 15%4 (Hint: 1. Derive the formula of the present value of a perpetuity .2. Find the present value.)
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