The graduating class decides to leave a donation which will allow the university to expand the finance department. The resources needed for a new professor are wages of 100K, paid in perpetuity. The risk-free rate is 2%.

a.How much money will the graduating class have to raise for their donation if done in one lump sum today?

b.Rather than collect all funds today, the class decides to pay for the position by raising equal amounts at the end of the year for the next four years. What is the size of each annual installment?

Answer rating: 100% (QA)

a To calculate the lump sum donation required today we can use the present value formula Present Val... View the full answer