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What is Present Value and Effective Interest Rates about?

This document discusses calculating the present value of a recurring payment stream that increases annually by an inflation rate i, to fund a foundation. It shows that given a $10 billion pledge to the foundation, an annual inflation rate of 2%, and an interest rate of 8%, the starting annual payment (C) that satisfies the present value calculation is $588.2 million. This is significantly lower than a constant $800 million payment to guarantee having enough funds for future inflation adjustments.

Author

Benjamin Chillam

Language

EN