Mrs Ma Yong Yu, a wealthy UI graduate, has started a permanent endowment fund at

Question

Mrs Ma Yong Yu, a wealthy UI graduate, has started a permanent endowment fund at the University of Iowa by donating $500000 to the Mechanical and Industrial Engineering Dept. Her instructions state that ½ of the interest each year is to be given to a certain Dr Beltran del Rio and other half is to remain in the fund for growth. If the University can invest the money at a market rate of 8% per year when the inflation rate is 3% per year,

A. How many dollars will Dr Beltran del Rio will receive at the end of year 9?

B. How many dollars will be in the fund 20 years from now?

Explanation / Answer

A. if the interest money is given out to Dr Beltran every year, then he would have received a total of $ 180,000 at the end of year 9. Simple interest @ 4% per annum.

However, if the interest money is reinvested at the same rate. then total total compound interested accumulated at the end of year 9 = 500,000*(1+4%)^9 - 500,000 = $ 211,656

B. Fun value after 9 years will be = 500,000*(1+4%)^9 = $ 711,656

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.