A one-time gift to your college will provide $25,000 in scholarship funds next year with that amount increasing by 2 percent annually thereafter. If the discount rate is 5.5 percent, what is the current value of this perpetual gift? a) $748,602.49 b) $726,849.29c) $714,285,71

Question

Jax Maldonado

Business

13 August, 19:23

A one-time gift to your college will provide $25,000 in scholarship funds next year with that amount increasing by 2 percent annually thereafter. If the discount rate is 5.5 percent, what is the current value of this perpetual gift? a) $748,602.49 b) $726,849.29c) $714,285,71

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Randy Myers · Answer 1

c) $714,285.71

Explanation:

The computation of the current value of this perpetual gift is shown below:

= (Scholarship fund provided next year) : (discount rate - growth rate)

= ($25,000) : (5.5% - 2%)

= ($25,000) : (3.5%)

= $714,285.71

In order to find out the current value, we considered all the given information that are mentioned in the question