In Example 4.3, you planned to donate money to your alma mater to fund an annual $30,000 graduation party. Given an interest rate of 8% per year, the required donation was the present value of:

Before accepting the money, however, the student association has asked that you increase the donation to account for the effect of inflation on the cost of the party in future years. Although $30,000 is adequate for next year’s party, the students estimate that the party’s cost will rise by 4% per year thereafter. To satisfy their request, how much do you need to donate now?

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PV = $30,000/0.08 = $375,000 today