In: Finance
You want to create an endowment to fund a football scholarship, which pays $20,000 per year, forever, how much money must be set aside today if the rate of interest is 4.7%?
a. |
$682,477 |
|
b. |
$517,698 |
|
c. |
$1,000,000 |
|
d. |
$736,857 |
|
e. |
$425,532 |
Information provided:
Annual payment= $20,000
Interest rate= 4.7%
The question is solved by computing the present value of perpetuity.
Present value of the perpetuity payment each year= annual payment/discount rate
= $20,000/ 0.047
= $425,531.9149 $425,532.
Hence, the answer is option e.
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