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What is the starting salary that can be supported donation

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Reference no: EM132729847

After a retiring from a successful business career, you would like to make a donation to your university. This donation will go into the school's endowment pool and the returns generated from the donation will support the salary of a new professor in the business school on a perpetual basis. The university expects to earn returns of 5.5% on its endowment pool. You may assume that any distributions to support the salary will be made annually.

Problem 1: After further discussions, the university determines that the employment agreement with the new professor will call for annual salary increases of 2%. Given this new requirement, and assuming the first salary distribution will still occur one year from today, what is the starting salary (at t=1) that can be supported with your $2,000,000 donation?

A. $40,000
B. $112,200
C. $70,000
D. $150,000

Reference no: EM132729847

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