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A generous benefactor invested money in a scholarship fund ten years ago at an interest rate...

A generous benefactor invested money in a scholarship fund ten years ago at an interest rate of 8 percent. Every year (and continuing on indefinitely into the future), the fund awards $50,000 in scholarships to worthy college students. How much did this benefactor deposit into the account initially? Assume all interest is paid out annually but the principal amount remains untouched.

a. 625,500

b. 500,000

c. 462,963

d. 400,000

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Answer #1

ANSWER = a. 625,000 Amount to be invested = = 50,000 / 8% 625,000

Present value of perpetuity = Return per period / Discount rate

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