Question

You want to endow a scholarship that will pay $ 5 000 per year​ forever, starting one year from now. If the​ school's endowment discount rate is 10 %​, what amount must you donate to endow the​ scholarship?

Answer 1

You must donate $50,000.

Step-by-step explanation:

Giving the following information:

You want to endow a scholarship that will pay $5,000 per year​ forever.

The​ school's endowment discount rate is 10 %​

We need to find the present value of a perpetual annuity. We will use the following formula:

PV= Cf/ i

Cf= cash flow= 5,000

PV= 5,000/0.10= $50,000

You must donate $50,000.