You want to create an endowment to fund a football scholarship, which pays $20,000 per year,...

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

Expert Solution

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.

In case of any query, kindly comment on the solution

jeff jeffy answered 1 year ago

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