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Assignment1_Winter2007_January212007 - AK/ADMS3530 3.0...

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AK/ADMS3530 3.0 Assignment #1 Winter 2007 Instructions: (1) This assignment is to be done individually. You must sign and submit the standard cover page supplied as the last page of this assignment . (2) Before you start, please read the note “ Writing Style Required for ADMS3530 Assignments ” posted in the “Assignments” folder on the course web site. Please stick to the writing guidelines suggested in the note. (3) This assignment is due at the start of class , the week of February 5, 2007 . (4) For Internet section students, the assignment must be uploaded to the Centre for Distance Education: http://www.atkinson.yorku.ca/cde/assignmentupload and identified precisely in accordance with the course outline by Tuesday, February 6, 2007, midnight. (5) This assignment is to be either handwritten or printed out. Work that is too difficult to read due to messiness and poor handwriting will receive zero credit. You must show your work to receive full credit. (6) This assignment carries a total mark of 100 points. (7) Late assignments will not be accepted whether for technical or any other reason. (8) Decimal places: please keep at least 4 in your calculations and 2 in your final answers. Question 1 (12 marks) You became incredibly wealthy one day and a huge contributing factor to your success was the education that you’d received at York/Atkinson. As a way to thank the school you set up an endowment today in the amount of $5,000,000. But you don’t just hand over $5,000,000 just like that!!! You stipulate that York use the funds to provide scholarships to ADMS3530 students totaling $250,000 annually. The scholarships are to commence one year from today and are to continue for as long as ADMS3530 is around (in effect for ever!!!). The market interest rate for the foreseeable future is expected to be 5% per annum compounded annually. (a) Based on the above information will York be able to meet your stipulation by providing ADMS3530 students with annual scholarships totaling $250,000 for ever? Provide supporting analysis. (2 marks)
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ADMS3530 3.0 Assignment #1 (b) What if your endowment was $4,000,000 instead of $5,000,000 would York still be able to meet your stipulation? If not what would be the maximum annual scholarship payout? Provide supporting analysis. (3 marks) (c) As we all know the cost of education keeps going up and up. To accommodate these inflationary pressures you ask that the $250,000 scholarship grow at a constant rate of 1% annually. Would York be able to fund this scholarship for ever with your $5,000,000 endowment? If not what would be the maximum annual scholarship? Provide supporting analysis. (4 marks) (d) What would your endowment have to be to accommodate annual scholarships of $300,000 with a constant growth rate of 1% annually? Provide supporting analysis. (3 marks)
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