Homework Answers
| The Present Value of the Perpetually growing annuity( gift)= $ 500000 |
| Using the formula to find the present value of a growing perpetuity at the reqd. rate of return, |
| PV(Perpuity)= Annual pmt./(Reqd. return-Growth rate) |
| ie. 500000=Annual Scholarship/(Reqd. return-Inflation Growth rate) |
| ie. 500000=Annual Scholarship/(5.5%-3%) |
| Annual scholarship amt.=500000*(5.5%-3%) |
| 12500 |
| Answer: The yearly scholarship = $ 12500 |
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