Question

You plan to set up an endowment at your alma mater that will fund $209,000 of scholarships each year indefinitely. If the principal (the amount you donate) can be invested at 5.0 percent, compounded annually, how much do you need to donate to the university today, so that the first scholarships can be awarded beginning one year from now

Answer 1

Answer:

$199,047.62

Step-by-step explanation:

PV = X(1+i)^nm

X=$209000

i=5% = 0.05

n=1

m=1

Pv=$209000(1+0.05)^-1x1

Pv=$209000(1.05)^-1

Pv=$209000(1/1.05)

Pv=$209000/1.05

Pv=$199,047.62

$199,047.62 is needed to be donated for investment at 5.0% compounded annually rate for a year so as to get $209,000 at end of the year for the purpose of funding the scholarship.