Question

Aloma, a university graduate who started a successful business, wants to start an endowment in her name that will provide scholarships to ChE students. She wants the scholarship to provide $13,000 per year and expects the first one to be awarded on the day she fulfills the endowment obligation. If Aloma plans to donate $240,000, what rate of return must the university realize in order to award the annual scholarship forever?

The rate of return that the university must realize in order to award the annual scholarship forever is _____%.

Answer 1

5.73%

Explanation:

Calculation for the rate of return that the university must realize

Using this formula

Rate of return = Initial payment/(Plan to donate- Initial payment)

Let plug in the formula

Rate of return=$13,000/($240,000-$13,000)

Rate of return=$13,000/$227,000

Rate of return=0.0573*100

Rate of return =5.73%

Therefore The rate of return that the university must realize in order to award the annual scholarship forever is 5.73 %.