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An OSU alumna wants to establish a scholarship fund that can provide $10,000 annually for scholarships over a 20-year period, starting exactly 6 years from now (t.=6). She is planning to make the following cash contributions– an initial (t=0) contribution now followed by 5 annual (t=1 through t=5) contributions. She just contributed $50,000. She plans to make 5 equal annual contributions starting one year from now. If the fund is expected to earn 10% per year compounded annually, determine the annual contribution she would have to make over the next 5 years.

3) (24 points) An OSU alumna wants to establish a scholarship fund that can provide $10,000 annually for scholarships over a
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Answer #1

PW of cash flow from EOY 6 to EOY 25 at EOY 5 = 10000*(P/A,10%,20)

= 10000 *8.513564

= 85135.64

FW of initial contribution at EOY 5 = 50000*(F/P,10%,5)

= 50000* 1.610510

= 80525.50

Annual contribution required for next 5 yr = (85135.64 - 80525.50)*(A/F,10%,5)

= (85135.64 - 80525.50)*0.163797

= 755.13

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