andowmant is o allow thr hese funds neady students to taka tha Intraduchory tian
ID: 2817870 • Letter: A
Question
andowmant is o allow thr hese funds neady students to taka tha Intraduchory tianca course ach year Inparpt ha guarand annual cost ot tuition and boks or the courna IsSYUU persudant. Tha adont wil ba crated by making a sgla paymant so the unasty. The univanity expacts oamxapaon b. What amount would b. needed to tnd the endowment tthe unlversty could eanh y s rather than 4% per year on the tnds? The inti sngle payment must Maria's parents make to the uriverzity to fund the endowment is · iRound to the narest dolar.] b. The amourt needed to fund the endowment the unversity could earn 8% rather than 5% per vear on the funds is $. Round to the nearest dollar.)Explanation / Answer
(a) Course Cost per student = $ 700 and Number of Students = 3
Perpetual Annual Course Cost = 700 x 3 = $ 2100 and University's rate of return = 5 %
The initial single payment which will take care of the annual course cost for three students in perpetuity would be equal to the perpetuity's Present Value.
Therefore, Initial Single Payment = P = 2100 / 0.05 = $ 42000
(b) University Rate of Return = 8 % and Perpetual Course Cost = $ 2100
Therefore, Initial Single Payment Required = 2100 / 0.08 = $ 26250
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