Betty Lovelace wants to set up a fund which will provide in perpetuity a scholarship of...

Betty Lovelace 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

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Expert Solution

Effective annual rate = (1+Quarterly rate)^Number of periods per year - 1

= (1+3.8%/4)^4 - 1

= 3.8545%

Amount of fund required = Annual Payment/Interest rate

= 2600/3.8545%

= $67,453.63

jeff jeffy answered 2 years ago

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