1) You want to endow a scholarship today that pays $10,000 per year forever, starting one year from now. What amount must you donate today to endow the scholarship if the discount rate is 7%? How would your answer change in if you endow the scholarship now, but it makes the first award to a student 10 years from today?
2) Suppose you are thinking of purchasing company XYZ Inc.’s stock today and selling it after 30 years. You expect the company to make $1 payments in dividends per year for the next 20 years and $1.50 in dividends for the following 10 years. At the end of 30 years, you expect to sell the stock for $50. Assume that the risk-free rate is 5%, the firm’s stock has a beta of 1.2 and the market risk premium is 7%. How much are you willing to pay for this stock today?