You are establishing a fund that pays $1,000 annual scholarship to a student at Bauer Collage of Business starting a year from today, forever. If you can earn 8 percent annual return, how much do you have to put aside to keep this scholarship forever

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Business

Yaka

13 January, 19:36

You are establishing a fund that pays $1,000 annual scholarship to a student at Bauer Collage of Business starting a year from today, forever. If you can earn 8 percent annual return, how much do you have to put aside to keep this scholarship forever

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Jonathan Bolton · Answer 1

How much do you have to put aside to keep this scholarship forever?

So this is a perpetuity and formula is PV=C/R

Annual Scholarship = $1,000 (C)

Annual Interest Rate = 8% (R)

Present Value of Perpetual Payment = 1000/0.08 = $12,500

Need to keep aside $12,500 for annual scholarship of $1,000 in perpetuity