Question

the instructors in the school of business collected $25,655 for the creation of a scholarship for first-year business students. the $25,655 is deposited into an account that earns 6% compounded semi-annually. the scholarship will be awarded once a year forever and the first scholarship will be awarded 5 years after the funds are deposited. how much can they pay out as a scholarship each year?

Answer 1

To calculate the amount that can be paid out as a scholarship each year, we need to use the formula for compound interest. The initial deposit of $25,655 will earn interest at a rate of 6% compounded semi-annually. The first scholarship will be awarded 5 years after the funds are deposited.

Step-by-step explanation:

To calculate the amount that can be paid out as a scholarship each year, we need to use the formula for compound interest. The initial deposit of $25,655 will earn interest at a rate of 6% compounded semi-annually. The first scholarship will be awarded 5 years after the funds are deposited.

Using the formula A = P(1 + r/n)^(nt), where A is the future value, P is the initial deposit, r is the interest rate, n is the number of times interest is compounded per year, and t is the number of years, we can calculate the future value of the deposit after 5 years: A = $25,655(1 + 0.06/2)^(2*5)

After calculating the future value, we can divide it by the number of scholarships that will be awarded each year (which is 1) to find out how much can be paid out as a scholarship each year.