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You want to endow a scholarship that will pay $10,000 per year forever, starting one year from now. The school’s endowment discount rate is 7%. What amount must you donate to endow the scholarship?

Answer :

Answer:

$142857.14

Explanation:

Given:

Present value (PV) = ?

Cash Flow (C) = $10,000

Discount Rate = 7% = 7 / 100 = 0.07

Calculation of Present Value.

Present Value = Amount of Cash Inflow / Discount rate

Present value = $10,000 / 0.07

Present Value = $142,827.143

So, Present value of Perpetuity is $142,827.14 must be donate to get scholarship .

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