1. After inheriting $1,000,000, you decide to make an endowment to DBU that will fund a...
1. After inheriting $1,000,000, you decide to make an endowment to DBU that will fund a scholarship of $8,000 every year for the next 30 years. The market interest rate for a deposit account that will disperse such an annuity is 9.5%, compounded annually. What amount must you invest in this account today to fund this annuity for 30 years (the 30th payment will zero out the account)?
Homework Answers
Amount to be invested today is equal to the present value of future payments
= Annual Amount*Present value annuity factor
= 8,000*PVAF(9.5%, 30 years)
= 8,000*9.8347
= $78,677.6
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