Question

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

Answer 1

Answer:

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