A generous philanthropist plans to make a one-time endowment to a renowned heart research center which would provide the facility with 250,000 per year into perpetuity. The rate of interest is expected to be 8 percent for all future time periods.
How large must the endowment be?
A) 2,314,814
B) 2,000,000
C) 3,125,000
D) 3,000,000
Question 2
You can deposit your savings at the Darlington National Bank, which offers to pay 12.6 percent interest compounded monthly, or at the Barlett Bank, which will pay interest of 11.5 percent compounded daily. (Assume 365 days in a year.
) Which bank offers the higher effective annual rate?
A) Darlington National Bank
B) Barlett Bank
C) Both banks offer the same effective rate.
D) Cannot be determined from the information provided.
E) Workable only if the banks use the same compounding period.
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