Assuming in twenty years after graduating from ERAU you become extremely wealthy. You want to give...

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Finance

Assuming in twenty years after graduating from ERAU you becomeextremely wealthy. You want to give back to your school andestablish a scholarship endowment that will pay $200,000 per yearin perpetuity to support ERAU students in need. Assume aconservative rate of return of 5% per year.
1. If the first payment will be made in one year afterestablishing the endowment, how much should you invest in it?
2. How much do you need to invest in the endowment if you wantthe first payment to be made in 6 years from establishing it?
3. In how many years your endowment will be depleted?
4. If you plan to save for this endowment (first payment in oneyear) over 15 year period and your expected personal rate of returnis 12%, how much should you invest every year? Assume equal annualpayments.

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3.8 Ratings (640 Votes)

1 Target Annual Payout Amount Annual Endowment 200000 and Rate of Return 5 First Endowment happens at the end of year 1 assuming current time is beginning of year 1 Therefore Current Investment 200000 005 4000000 2 Target Annual Payout See Answer

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Assuming in twenty years after graduating from ERAU you becomeextremely wealthy. You want to give back to your school andestablish a scholarship endowment that will pay $200,000 per yearin perpetuity to support ERAU students in need. Assume aconservative rate of return of 5% per year.1. If the first payment will be made in one year afterestablishing the endowment, how much should you invest in it?2. How much do you need to invest in the endowment if you wantthe first payment to be made in 6 years from establishing it?3. In how many years your endowment will be depleted?4. If you plan to save for this endowment (first payment in oneyear) over 15 year period and your expected personal rate of returnis 12%, how much should you invest every year? Assume equal annualpayments.