Question

You want to endow a scholarship that will pay $ 5 comma 000 per year​ forever, starting one year from now. If the​ school's endowment discount rate is 8 %​, what amount must you donate to endow the​ scholarship? How would your answer change if you endow it​ now, but it makes the first award to a student 10 years from​ today?

Answer 1

$31,406 approx

Step-by-step explanation:

The computation of the given question is shown below:-

Endowment to scholarship:-

= $5,000 ÷ 8%

= $62,500

If scholarship start one year from now:

= Endowment to scholarship × one year ÷ (1 + Discount rate)^number of years

= $62,500 × 1 ÷ (1 + 8%)^9

= $62,500 × 1 ÷ (1.08)^9

= $62,500 × 1 ÷ 1.9990

= $62,500 × 0.5025

= $31,406 approx