Time Value of Money
Kinds of Interest Rates
Future Value of an Uneven Cash flow
Security Market Line
Cost of Capital
The Balance Sheet
Hall of Fame
You are rich. (Yes, but are you really happy?) You want to start the YOUR NAME HERE Scholarship at your university. Every year, some student will receive a $1000 scholarship. You're paying for it. Even after you, your kids and your grandkids are dead, you are still paying for it. Forever.
The question is....How much money will it cost you. In today's dollars. What is the present value of this perpetuity. (Hint: starting now and going on forever and ever, you assume the interest rate at your bank is going to be 3%).
Every year the interest you earn is used to pay for the scholarship. The principal in your bank account doesn't really change year to year.
So, you put $ 33,333 into the bank. Each year the money earns $1000 interest. That interest becomes the scholarship.
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