Question

A permanent scholarship fund is started through a donation of $75,000 today and 50,000 four years from now. If scholarships totalling $20,000 are awarded each year beginning seven years from now, the rate of return for the invested money is nearest to:

Group of answer choices

8%

12%

10%

6%

Answer 1

It shall be noted that value of $75000 on 7th year from now at different interest rate is:

	0th Year	7th Year
8%	75000	128537
12%	75000	165801
10%	75000	146154
6%	75000	112772

The value of $50000 on 7th year from now, given that it originates at 4th year from now, at different interest rate is:

	4th Year	7th Year
8%	50000	62985.6
12%	50000	70246.4
10%	50000	66550
6%	50000	59550.8

Thus, the total value at 7th year from now:

	Value of $75000 at 7th Year from Now	Value of $50000 at 7th Year from Now	Total
8%	128536.8202	62985.6	191522.4
12%	165801.1056	70246.4	236047.5
10%	146153.7825	66550	212703.8
6%	112772.2694	59550.8	172323.1

The value of $20000 at 7th year, given that is awarded every year from 7th year onwards till perpetuity at different interest rate is:

	Value of $20000 assuming perpituity
8%	250000
12%	166666.6667
10%	200000
6%	333333.3333

Thus, at 10%, value of donations at 212703.8 is closer to value of scholarship at 200000

Hence, 10% is the nearest rate of return for the invested money