Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. a) John is given the choice between two forms of compensation. A: Receive $100,000 upfront. B: Receive $60,000 at the end of this year

1. a) John is given the choice between two forms of compensation. A: Receive $100,000 upfront. B: Receive $60,000 at the end of this year and $60,000 at the end of the following year. Determine the annual discount rate that would make the present value of these two options equal. [Hint: Use trial and error with a calculator. Try as many times as needed to get as close to the intended present value as you may need. Remember that higher discount rates (yields) lead to lower present values. Another hint: Form A ($100K) is already in present value terms: no need to discount.

b) St Louis University (SLU) is soliciting donations to fund a $100,000-per-year perpetual professorship. The current available interest rate on SLU's money is 4% p.a. Determine the amount of funds SLU needs today to fund the professorship. (Hint: SLU must pay $100,000/year to the professor occupying that professorship.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Handbook Of Corporate Equity Derivatives And Equity Capital Markets

Authors: Juan Ramirez

1st Edition

1119975905, 978-1119975908

More Books

Students also viewed these Finance questions

Question

Define procedural justice. How does that relate to unions?

Answered: 1 week ago