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# Calculating the Present Value of an Endowment

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A wealthy philanthropist has established the following endowment for a hospital. The details are as follows: a cash deposit of \$ 8 M one year from now; an annual cash deposit of \$3M per year for the next five years. The first \$3M will start today; at the end of 5 years, the hospital will also receive a lump sum payment of \$18M. Assuming the cost of money is 3%, what is the value of this endowment in today's dollars? Show your work.

##### Solution Summary

Solution describes the steps to estimate the present value of given future deposits. Calculations are carried out with the help of suitable algebraic formulas.

##### Solution Preview

Let us calculate Present value of \$8 M deposited one year from now
Future Value of deposit = FV = \$8,000,000
Number of periods = n = 1
Discount rate = i = 3%
PV1=FV/(1+i)^n = 8000000/(1+3%)^1 = ...

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###### Education
• BEng (Hons) , Birla Institute of Technology and Science, India
• MSc (Hons) , Birla Institute of Technology and Science, India
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