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You dream of endowing a chair in finance at the local university that will provide a salary of $250,000 per year forever, with the first cash flow to be one year from today. If the university promises to invest the money at a rate of 4% per year, how much money must you give the university today to make your dream a reality?

Respuesta :

Answer:

$6,250,000

Explanation:

Data provided in the question

Salary per year = $250,000

Rate of interest = 4% per year

So by considering the above information, the amount given today should be equal to

= Salary per year ÷ Rate of interest

= $250,000 ÷ 4%

= $6,250,000

By dividing the salary with the rate of interest we can get the amount that has to be given today

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