If you want to be able to set up a scholarship fund that will last forever and you feel that you can earn 4.8% compounded annually. How much money do you have to deposit today in order to be able to provide 6 scholarships of $3000 each?

Question

Quizplus · Accepted Answer

We can use the present value formula to find out how much money we need to deposit today:
PV = (FV * (1 - (1 + r)^(-n))) / r
where:
PV = present value
FV = future value (total amount needed for scholarships)
r = interest rate
n = number of periods (in this case, years)

Plugging in the values:
PV = ($3000 * 6) * (1 - (1 + 0.048)^(-∞)) / 0.048
PV = $18,000 * 20.7107
PV = $373,192.60

Therefore, we need to deposit $375,000.00 today to provide 6 scholarships of $3000 each forever, assuming an interest rate of 4.8% compounded annually. Note that this answer is closest to option B.

If You Want to Be Able to Set Up a Scholarship