Question
In: Finance
Alysha, a retired librarian, would like to donate some money toher alma mater to endow...
Alysha, a retired librarian, would like to donate some money to
her alma mater to endow a $3,000 annual scholarship. The first
scholarship will be awarded in 5 years. The university will manage
the funds and expects to earn 3 percent per year.
How much will Alysha have to donate so that the endowment fund
never runs out? (Round answer to 0 decimal places, e.g.
125. Do not round your intermediate
calculations.)
Solutions
Expert Solution
Alysha wants to denote to her alma mater an amount for annual scholarship that starts in 5 years from now. Annual Scholarship is $3000
Since it starts in 5 years from now, first we will calculate the Present value at time year end 4 of annual scholarship in perpetuity(forever) formula and then we will discount it back to Present value today.
Where,
r = Periodic Interest rate = 3%
n= no of periods of discounting = 4
Present value = $88,848.70
So, the amount Alysha have to donate so that the endowment fund never runs out is $88,849
jeff jeffy answered 2 years agoRelated Solutions
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