7 To honor your instructor in ECON 310 you have decided at g

7. To honor your instructor in ECON 310, you have decided at graduation to endow a professorship in engineering economics that pays $250,000 per year in perpetuity (i.e., forever). If accounts at the UM Foundation earn 2% interest, you will have to make a lump-sum gift of to achieve your goal.

Solution

7.

Interest rate (R) = 2%

Professorship payment = $250000

Then,

The value of lump-sum gift = Professorship payment / R

The value of lump-sum gift = 250000/2%

The value of lump-sum gift = $12500000