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You plan to donate $2,500,000 to establish a fund to support the Feliciano School of Business at Montclair State. For that sum, your bank offers to establish a perpetuity that will pay $120,000 every year into the future. What is the rate the banker is offering on this deposit? 4.36% 20.83% O 11.27% 4.80%

You plan to donate $2,500,000 to establish a fund to support the Feliciano School of Business at Montclair State. For that sum, your bank offers to establish a perpetuity that will pay $120,000 every year into the future. What is the rate the banker is offering on this deposit? 4.36% 20.83% O 11.27% 4.80%

Essentials Of Investments
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
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**Question:** You plan to donate $2,500,000 to establish a fund to support the Feliciano School of Business at Montclair State. For that sum, your bank offers to establish a perpetuity that will pay $120,000 every year into the future. What is the rate the banker is offering on this deposit? **Options:** - 4.36% - 20.83% - 11.27% - 4.80%
Transcribed Image Text:**Question:** You plan to donate $2,500,000 to establish a fund to support the Feliciano School of Business at Montclair State. For that sum, your bank offers to establish a perpetuity that will pay $120,000 every year into the future. What is the rate the banker is offering on this deposit? **Options:** - 4.36% - 20.83% - 11.27% - 4.80%
Expert Solution
Step 1: Introduction

Present value can be defined as how much is the worth of the future sum of money at present provided a specific rate of return. The concept of present value is based on the principle that the value of a sum of money will not be similar to the value of that sum of money in the future.

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