What is the annual amount available for distribution as scholarships?

A recent alumnus of your university gifted two million dollars to the school to fund annual scholarships for needy students. The school expects to earn an average rate of return of 5.0 percent on the gift and to use all annual earnings for scholarships. What is the annual amount available for distribution as scholarships?

Group of answer choices

$40,000,000
$100,000
$20,000,000
$10,000,000
$50,000

Expert Solution

Answer; $100,000

Explanation:

Gift amount = $2,000,000

Deposit amount = full gift amount i.e. $2,000,000

Interest rate on deposit = 5% per annum

Earnings on deposit amount = 2,000,000 x 5% = $100,000

Scholarship distribution = all earnings on deposit

Amount available for distribution = $100,000

P

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