Annual effective discount rate

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  1. Ann donates $2,500,000 to UIUC to endow a professorship. The money is invested at 4% annual effective discount rate. What monthly salary will this donation support, if salary payments are made monthly, starting one month after the gift, and continue forever?
  2. Yifan received a 25-year annuity immediate on her 18th birthday. It pays $1000 per year. The annuity was originally purchased by Yifan's grandmother on the day Yifan was born. If the effective annual interest rate is a constant 4%, what was the purchase price?
  3. Wilson also receives a 25-year annuity immediate on his 18th birthday. It pays $2000 per year. Wilson decides to invest each annuity payment in a fund paying 4% annual effective discount rate. When Wilson retires on his 60th birthday, how much money will be in the fund?

Reference no: EM132238971

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