Question 14.2: When the university stadium was completed in 1960, the total...
When the university stadium was completed in 1960, the total cost was $1.2 million. At that time a wealthy alumnus made the university a gift of $1.2 million to be used for a future replacement. University administrators are now considering building the new facility in the year 2015. Assume the following:
•Inflation is 6.0% a year from 1960 to 2015.
• In 1955 the university invested the gift at a market interest rate of 8.0% per year.
(a) Define i, i’,f, A$, and R$ from the problem.
(b) How many actual dollars in the year 2015 will the gift be worth?
(c) How much would the actual dollars in 2015 be in terms of 1960 purchasing power?
(d) How much better or worse should the new stadium be?
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