Hannah wants to create a scholarship fund by saving for several years before the

Question

Hannah wants to create a scholarship fund by saving for several years before the fund starts making annual scholarship payments forever. She plans to save $192,000 per year for 6 years. Her first savings contribution to the fund is expected later today. What is the expected amount of the scholarship payment that the fund will make in 7 years if the fund is expected to earn 7.30 percent per year, make scholarship payments that grow annually by 1.80 percent forever, and make its first scholarship payment in 7 years?

Explanation / Answer

PMT = 192,000, N = 6, PV = 0, rate = 7.30%

use FV funciton in Excel with type as 1

value after 6 years = 1,484,878.39

1,484,878.39 = payment in 7 years /(0.073 - 0.018)

payment in 7 years = 81,668.31

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