You have decided to endow your favorite university with a scholarship. It is exp

Question

You have decided to endow your favorite university with a scholarship. It is expected to cost $6000 per year to attend the university into perpetuity. You expect to give the university the endowment in 15 years and will accumulate it by making equal annual (end-of-year) deposits into an account. The rate of interest is expected to be 9% 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 15 years to accumulate the required amount?

Explanation / Answer

a. the value of the endowment = 6000/0.09 = 66,666.6667

b. FV = 66,666.6667, PV = 0, N = 15, rate = 9%

use PMT function in Excel

amount to deposit each year = 2,270.59

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