You Have Decided to Endow the Insert Your Name Here

question 51

Essay

You have decided to endow the insert your name here Chair in Finance at the State University.How much money must you deposit into the endowment account today if the Chair pays $125,000 per year forever (first payment one year from today)and is invested at a rate that pays out 4.50% per year forever?

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Definitions:

Fairly Priced

A term suggesting an asset is trading at a price close to its intrinsic value, considering its earnings, growth potential, and risk.

Expected Return

The predicted amount of profit or loss an investment generates based on historical or projected performance.

Risk-free Rate

The return on investment of a theoretically risk-less security, often represented by the yield on government bonds.

Risk Premium

The additional return expected by an investor for taking on a higher level of risk, compared to a risk-free investment.