Reference no: EM132927302
Question -
A. You became incredibly wealthy one day and a huge contributing factor to your success was the education that you'd received at A University. As a way to thank the school you set up an endowment today in the amount of Php5,000,000. But you don't just hand over Php5,000,000 just like that!!! You stipulate that A University use the funds to provide scholarships to BSA students totaling Php250,000 annually. The scholarships are to commence one year from today and are to continue for as long as BSA is offered (in effect for ever!!!) at A University. The market interest rate for the foreseeable future is expected to be 5% per annum compounded annually.
(a) Based on the above information will York be able to meet your stipulation by providing ADMS3530 students with annual scholarships totaling Php250,000 for ever? Provide supporting analysis.
(b) What if your endowment was Php4,000,000 instead of Php5,000,000 would York still be able to meet your stipulation? If not what would be the maximum annual scholarship payout? Provide supporting analysis.
(c) As we all know the cost of education keeps going up and up. To accommodate these inflationary pressures you ask that the Php250,000 scholarship grow at a constant rate of 1% annually. Would York be able to fund this scholarship for ever with your Php5,000,000 endowment? If not what would be the maximum annual scholarship? Provide supporting analysis.
(d) What would your endowment have to be to accommodate annual scholarships of Php300,000 with a constant growth rate of 1% annually? Provide supporting analysis.
B. Helena Troy owes his boyfriend some money. His friend gives him 5 options of payment. If the rate of interest is 8%, which option should Helena choose?
I. Pay Php2,100 today
II. Pay Php500 per year, at the end of every year for 5 years
III. Pay Php450 per year, at the beginning of each year for 6 years,
IV. Pay Php500 at the end of year 1, Php400 at the end of year 2, Php300 at the end of year 3, and Php1,500 at the end of year 4,
V. Pay Php1,200 at the end of year 3 and Php1,500 at the end of year 5