Question

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?

Answer 1

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

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

$=6000(1.13)^6$

$=12491.71dollars$