Question

A college received a contribution to its endowment fund of $2 million. They can never touch the principal, but they can use the earnings. At an assumed interest rate of 9.5 percent, how much can the college earn to help its operations each year?

A)

$19,000

B)

$190,000

C)

$18,000

D)

$95,000

Answer 1

The college can earn $190,000 annually from its endowment fund's earnings, assuming a 9.5% interest rate on the $2 million principal.

Step-by-step explanation:

If a college received a contribution to its endowment fund of $2 million and can use the earnings from an assumed interest rate of 9.5 percent, we can calculate the annual earnings by multiplying the principal amount by the interest rate. The calculation would be:

Annual earnings = Principal × Interest rate
Annual earnings = $2,000,000 × 0.095
Annual earnings = $190,000

Therefore, the college can earn $190,000 each year to help its operations, which corresponds to option B.