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Author Question: A generous benefactor to the local ballet plans to make a one-time endowment which would provide the ... (Read 46 times)

Bernana

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on: Jul 10, 2018
A generous benefactor to the local ballet plans to make a one-time endowment which would provide the ballet with 150,000 per year into perpetuity. The rate of interest is expected to be 5 percent for all future time periods.
 
  How large must the endowment be?
  A) 300,000
  B) 3,000,000
  C) 750,000
  D) 1,428,571

Question 2

The present value of a lottery received as an annuity due is less than the present value of a lottery whose cash flows are received as an ordinary annuity.
 
  (Assume that the interest rate used to discount the cash flows is positive and equal between the two choices and that the magnitude and number of cash flows are equal for the two choices. Only the timing of the cash flows differs between the two choices.)
  Indicate whether the statement is true or false.


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dantucker

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Reply #1 on: Jul 10, 2018
Answer to Question 1

B

Answer to Question 2

Answer: FALSE
Explanation: The annuity due is more valuable than the ordinary annuity.


Bernana

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Reply 2 on: Jul 10, 2018
Thanks for the timely response, appreciate it

elyse44

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Reply 3 on: Yesterday
:D TYSM

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