Question #215737

You have decided to endow Faculty of Business, Dokuz Eylul University with a scholarship. It is expected to cost $6,000 per year to attend the university into perpetuity. You expect to give the university the endowment in 6 years and will accumulate it by making equal annual (end-of-year) deposits into an account. The rate of interest is expected to be 13% for all future time periods.

a. How large must the endowment be?

b. How much must you deposit at the end of each of the next 6 years to accumulate the required amount?

Expert's answer

a) endowment will be

"PV=\\frac{CF}{r}"

"=\\frac{6000}{0.13}"

"=46153.8462 dollars"

b)we need to accumulate $46,153.8462 in 6 years

"FV=PV(1+i)^{6}"

"=6000(1.13)^6"

"=12491.71dollars"

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