A Generous Philanthropist Plans to Make a One-Time Endowment to a Renowned

question 4

Multiple Choice

A generous philanthropist plans to make a one-time endowment to a renowned heart research center which would provide the facility with $250,000 per year into perpetuity. The rate of interest is expected to be 8 percent for all future time periods. How large must the endowment be?

• A) $2,314,814
• B) $2,000,000
• C) $3,125,000
• D) $3,000,000

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Definitions:

Sinking Fund

Account managed by the bond trustee for early bond redemption.

Preemptive Right

A shareholder's right to buy additional shares of a company's stock before it is offered to the public, maintaining their proportional ownership.

Common Stock

Equity ownership in a corporation, giving holders voting rights and a share in the company's profits through dividends and capital appreciation.

Ownership

The state or fact of exclusive rights and control over property, which can be an object, land/real estate, or intellectual property.