Question

Required information Yvonne's father was a true believer in "giving back." He endowed a program 35 years ago to help students receive degrees when they are short on funds. How much money was contributed 35 years ago if it earned at a rate of 11% per year (with no withdrawals) and is now sufficient to provide a perpetual income of $22,000 annually beginning this year, year 35? The amount of money that was contributed 35 years ago is $ 570.32

Answer 1

Answer:$5184.73

If the sum is able to provide perpetual income of $22,000 the present value of the sum will be:

PV of perpetuity=PMT/i=22000/11%=$200,000

Since the sum is 200,000 now its present value 35 years back shall be:

Present Value (P)=C/{[(1+r)^n]}

Where,

C=Future Value= 200000

r=ROI= 0.11

n=No. of periods= 35

Now putting values in formula,

= 200000/{[(1+ 0.11)^35 ]}

= 200000/{[( 1.11)^35 ]}

= 200000/{[ 38.57485 ]}

= 5184.7251

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