Samantha wants to set up a fund which will provide in perpetuity a scholarship of $2,600...

Samantha wants to set up a fund which will provide in perpetuity a scholarship of $2,600

to a deserving student at the end of each year with the first payment being made one year

from today . Find the amount Betty should deposit today into the fund to provide for this

scholarship if the interest rate is 3.8% compounded quarterly.

Expert Solution

$ 67,453.73

Step-1:Calculation of equivalent annual interest rate

Equivalent annual interest rate	=	((1+(i/n))^n)-1
	=	((1+(3.80%/4))^4)-1
	=	3.85%

Where,
i	=	Nominal rate of interest	=	3.80%
n	=	Number of times compounded in a year	=	4

Step-2:Calculation of amount to be deposited today

Amount to be deposited today	=	Annual cash flow	/	Equivalent annual interest rate
	=	2,600.00	/	3.85%
	=	67,453.73

jeff jeffy answered 2 years ago

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