The Finance Club would like to endow an annual prize of $150 to the student who shows the most promise as a future stockbroker.The club is confident that it can invest indefinitely at an interest rate of at least 5% a year.How much does the club need to endow its prize?
A) $3000
B) $158
C) $300
D) $3150

Question

Quizplus · Accepted Answer

To endow an annual prize of $150 indefinitely at an interest rate of 5%, the club needs to use the formula for perpetuity: Principal = Annual Payment / Interest Rate. Thus, Principal = $150 / 0.05 = $3000.

The Finance Club Would Like to Endow an Annual Prize