Question

Aloma, a university graduate who started a successful business, wants to start an endowment in her name that will provide scholarships to CE students. She wants the scholarship to provide $11,000 per year and expects the first one to be awarded on the day she fulfills the endowment obligation. If Aloma plans to donate $250,000, what rate of return must the university realize in order to award the annual scholarship forever

Answer 1

the rate of return is 4.60%

Step-by-step explanation:

The computation of the rate of return is shown below;

= Scholarship provided per year ÷ (Expected donated amount - Scholarship provided per year)

= $11,000 ÷ ($250000 - $11,000)

= $11,000 ÷ $239,000

= 4.60%

Hence, the rate of return is 4.60%