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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 ago
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