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3 February, 08:06

You want to endow a scholarship that will pay $ 11 comma 000 per year forever, starting one year from now. If the school's endowment discount rate is 9 % , what amount must you donate to endow the scholarship? How would your answer change if you endow it now, but it makes the first award to a student 10 years from today?

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  1. 3 February, 12:02
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    You must donate $ 123455.5556 to endow the scholarship.

    If the endow it now but it makes the first award to a student 10 years from today, then the amount to donate will be $ 56842.36731.

    Explanation:

    if the scholarship one year from now, the donation amount would be:

    present fund amount = (scholarship amount) / (discount rate)

    = $11,000/9%

    = $ 123455.5556

    Therefore, you must donate $ 123455.5556 to endow the scholarship.

    if the scholarship start in 10 years from today, the amount is:

    scholarship amount in 10 years = (amount of scholarship today) / [ (1+9%) ^9]

    = $ 123455.5556 / (1+9%) ^9

    = $ 56842.36731

    Therefore, if the endow it now but it makes the first award to a student 10 years from today, then the amount to donate will be $ 56842.36731.
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