Question

Benson's established a trust fund that provides $125,000 in college scholarships each year. The trust fund earns 6.15 percent and distributes only its annual income. How much money did Benson's contribute to establish this fund?

A. $2,018,970,44
B. $2,032,520,33
C. $1,987,408,15
D. $2,150,000,00
E. $2,291,613,13

Answer 1

To determine Benson's initial contribution to the trust fund, we calculate the principal that yields $125,000 annually at a 6.15% interest rate. The calculation results in a principal of approximately $2,032,520.33, which matches option B.

Step-by-step explanation:

The student's question requires us to calculate the principal amount that must be invested to generate an annual scholarship of $125,000 with an interest rate of 6.15%. This involves using the formula for the annual payout of an investment, which is the payout = principal * interest rate. By rearranging the formula, we find the principal = payout / interest rate.

Therefore, the principal needed is $125,000 / 0.0615. This gives us a principal amount of approximately $2,032,520.33, which would generate $125,000 in income each year to fund the scholarships. This corresponds to option B.