Question

In: Economics

Yvonne’s father was a true believer in “giving back.” He endowed a program 35 years ago...

Yvonne’s father was a true believer in “giving back.” He endowed a program 35 years ago to help students receive degrees when they are short on funds.

How much money was contributed 35 years ago if it earned at a rate of 6% per year (with no withdrawals) and is now sufficient to provide a perpetual income of $12,000 annually beginning this year, year 35?

Solutions

Expert Solution

First of all we need to calcualte the present value of the perpetuity:

.

Now over the 35 years, the initial amount should grow to 200,000 at 6% interest rate:

So the initial deposit is 26021.04

Rahul Sunny answered 2 years ago
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