Question: You have been hired to run a pension fund for a major corporation. The firm currently has $5 million in the fund, and expects to have cash inflows of $2 million a year for the first five years followed by cash outflows of $ 3 million a year for the next five years. Assume that interest rates are at 8%.

a. How much money will be left in the fund at the end of the tenth year?

b. If you were required to pay a perpetuity after the tenth year (starting in year 11 and going through infinity) out of the balance left in the pension fund, how much could you afford to pay?