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April 20, 2014

Homework Help: Finance

Posted by Jessie on Tuesday, January 15, 2013 at 4:59am.

Suppose that a company decides to make an annual gift to fund undergraduate scholarships. The first of these gifts will be given today and it is anticipated that the gifts will continue forever. The nominal discount rate is
8% and the rate of inflation is 2%.
The company anticipates that, in each of the next 50 years, it can
recruit one candidate to start a perpetual gift of $10,000 per year in real terms, i.e., this year the department receives one $10,000 gift, next year it receives two such gifts, the next year three gifts and so on. After year 50, no new donors are recruited, so the department receives 51 gifts per year from the existing donors. What is the present value of all of the scholarship gifts that the company anticipates receiving?

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