question 1

A wealthy and successful MFE alumna has decided to fund a

distinguished chair in Financial Economics. To this end she gives the

Department of Economics $1 million every five years. The first

payment will occur five years from today. If the interest rate is 8%

per year, what is the present value of her gift?

question 2

Your grandfather bought an annuity from Dodgy Plan Life Insurance

Company for $200,000 when he retired. In exchange for the

$200,000, Dodgy Plan will pay him $25,000 per year until he dies.

The interest rate is 5%. How long must he live after his retirement to

get more in value than what he paid in?