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You have decided to endow Dar Al-Ataa for house developments
You have decided to endow Dar Al-Ataa for house developments. How much money must you deposit into the endowment account today if your charity pays OMR 32,500 per year forever (first payment one year from today) and is invested at a rate that pays out 4.50% per year forever? Select one: O a. OMR 438,461.54 - b. OMR 360,000.00 OC. OMR 733,333.33 Od. OMR 722,222.22 O e OMR 572,727.27
Expert Solution
The correct answer is option D - OMR 722222.22
Explanation
We will need to deposit the present value of all the future cash flows in the account.
Present Value in case of perpetuity = Total Cash flows / Interest rate
= OMR 32500 / 4.50%
= OMR 722222.22
So we will need to deposit OMR 722222.22 in the account.
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