Question

A lump sum of $50,000 is deposited into an endowment for a scholarship that earns 4% interest compounded quarterly. What initial scholarship can be awarded a year from now so that it can be awarded in perpetuity?

1. Assume the scholarship amount does not change.
2. Assume the scholarship amount increases by $100 per year.
3. Assume the scholarship amount increases by 1%.

Answer 1

9

LTEM all 13% B13:15 pm Vo Document (4) - Saved Principal-50000 Interest rate is 4% interest compounded quarterly which means interest paying after 3months 3/12-1/4 so N-1/4 Formula for calculating compound interest-P11+R/100)#4n -5000011-0.04/4)4x1/4 -5000001+0.01 1.00+0.01-1.01 -5000011.01-50.500 Quarterly compound interest Scholarship awarded a year from novw Here n-1 -5000011-0.04/4)4 1 -50000(1+0.01A -50000 101)-500001.04060401) -52030 Assume that the scholarship amount does not change- which means the above values remain same after a year Assume that scholarship amount increases by 100 per year here P-501year Quarterly compound interest is-50100(1.01)-50601. Year compound interest is-50100(104060401)-52134 Assume that scholarship amount is increase by 1% means 1/100.50000:500