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10 April, 02:25

You want to endow a scholarship that will pay $ 5 000 per year forever, starting one year from now. If the school's endowment discount rate is 10 % , what amount must you donate to endow the scholarship?

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  1. 10 April, 02:39
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    You must donate $50,000.

    Explanation:

    Giving the following information:

    You want to endow a scholarship that will pay $5,000 per year forever.

    The school's endowment discount rate is 10 %

    We need to find the present value of a perpetual annuity. We will use the following formula:

    PV = Cf / i

    Cf = cash flow = 5,000

    PV = 5,000/0.10 = $50,000

    You must donate $50,000.
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