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Finding Future and Present Value of growing annuity

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(a) You've inherited $15,000,000 and have decided to use this money to open a shelter for abused women in Aurora one year from today. The annual operating costs are estimated to be $350,000 and are expected to grow at a constant rate of 2% (inflation) starting in year 2. If the interest rate is 4.5%, would you be able to fund this shelter?

(b) Given the above scenario, what would be the maximum amount available for annual operating expenses?

(c) What is the future value of a 20-year growing annuity if the growth rate is 2%, the annual interest rate is 6% and the payment at the end of year 1 is $5,000?

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(a) You've inherited $15,000,000 and have decided to use this money to open a shelter for abused women in Aurora one year from today. The annual operating costs are estimated to be $350,000 and are expected to grow at a constant rate of 2% (inflation) starting in year 2. If the interest rate is 4.5%, would you be able to fund this shelter? ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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