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You have been hired to run a pension fund for 2018 MBA Cohort Inc., a small manufacturing firm based in Ottawa. The firm currently
You have been hired to run a pension fund for 2018 MBA Cohort Inc., a small manufacturing firm based in Ottawa. The firm currently has $5 million in the fund and expects to have cash inflows of $2 million a year for the first 5 years followed by cash outflows of $3 million a year for the next 5 years, all at the end of each year. Assume that interest rates are 8% per annum, annually compounded. a. How much money will be left in the fund at the end of the tenth year? b. If you were required to pay a perpetuity after the tenth year (i.e., ordinary perpetuity starting in year 11 and going through to infinity) out of the amount left in the pension fund, how much could you afford to pay?
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