Question

A recent MSOE graduate wants to set up an endowment fund that can award scholarships to engineering students totaling $100,000 per year forever. The first scholarships are to be granted now and continue each year from now on. How much must the alumni donate now, if the endowment fund is expected to earn interest at a rate of 5% per year?

Answer 1

The amount of donation would be of $2,000,000

Step-by-step explanation:

According to the given data we have the following:

Perpetual scholarships= $100,000

interest rate=5%

Hence, in order to calculate how much must the alumni donate now if the endowment fund is expected to earn interest at a rate of 5% per year, we have to use the following formula:

Present Value= Annual Amount/Rate

Present Value=$100,000/5%

Present Value=$2,000,000

The amount of donation would be of $2,000,000