An award is being established, and it will pay $11,000 every two years, with the first...

An award is being established, and it will pay $11,000 every two years, with the first installment being paid in two years. The award will be given for an indefinitely long period of time. If the interest rate is 3% per annum, what lump-sum amount of money (invested now) will be required to endow this award forever? MARR is 3% Per year.

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Expert Solution

11000 every two years
Rate per year	3%

	Future value factor with Principal value
Year 0	1.0000
Year 1	1.0300
Year 2	1.0609

Interest components in future value factor for year 2 (1.0609-1)	0.0609

Amount Deposit for Today (11000/0.0609) (your answer)	180,623.9737

Proof of answer
Initial investment	180,623.9737
Add: interest for First year (180623.9737*3%)	5,418.7192
Total Balance after year 1	186,042.6929
Add: interest for Second year (186042.6929*3%)	5,581.2808
Total Balance after year 2	191,623.9737
Less: Fund Withdrawn for pay award	(11,000.0000)
Balance after Second year	180,623.9737
Add: interest for third year (180623.9737*3%)	5,418.7192
Total Balance after year 3	186,042.6929
Add: interest for fourth year (186042.6929*3%)	5,581.2808
Total Balance after year 4	191,623.9737
Less: Fund Withdrawn for pay award	(11,000.0000)
Balance after Second year	180,623.9737
*Same Process Continue forever*

ekkarill92 answered 1 year ago

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An award is being​ established, and it will pay ​$11,000 every two ​years, with the first...

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An award is being established, and it will pay $11,000 every two years, with the first...