A charitable foundation has $500,000 invested in an account that earns 7%. The foundation has promised to begin making annual payments to beneficiaries in one year, and the first payment will be $25,000. The foundation has promised that future payments will grow at a constant rate forever. At what rate can the foundation afford to increase payments assuming that it makes no additional deposits into the account? Select one: а. 2% b. 1%
A charitable foundation has $500,000 invested in an account that earns 7%. The foundation has promised to begin making annual payments to beneficiaries in one year, and the first payment will be $25,000. The foundation has promised that future payments will grow at a constant rate forever. At what rate can the foundation afford to increase payments assuming that it makes no additional deposits into the account? Select one: а. 2% b. 1%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A charitable foundation has $500,000 invested in an account that earns 7%. The foundation has
promised to begin making annual payments to beneficiaries in one year, and the first payment will
be $25,000. The foundation has promised that future payments will grow at a constant rate
forever. At what rate can the foundation afford to increase payments assuming that it makes no
additional deposits into the account?
Select one:
a. 2%
b. 1%
c. 0%; it can't afford to increase payments forever without adding more money to the
account.
d. 3%
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