11.2

2. Let’s say Phil Knight wants to endow the Nike Professorship of Finance. He wants the professorship to pay $100,000 every year forever. If interest rates are 7%, how much money would he have to give today to endow the professorship? (1 pt)




If interest rates were lower, would it cost more or less to endow the professorship? Why? (1 pt)
 
It would cost more. One way to think about the intuition is that the endowment will earn less interest per dollar each year, so there will have to be more of it to begin with in order to earn $100,000 per year.
 

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