Question

What is the size of the scholarship that can be paid in perpetuity at the end...

  1. What is the size of the scholarship that can be paid in perpetuity at the end of every three months from a fund $15,200. Interest is interest is 6.72% compounded annually.

*Please use financial calculator method and show the values being entered for PY, CY, I, N, PMT, FV, PV along with your final answer*

Homework Answers

Answer #1

The problem can be solved using perpetuity.

Fund Value = Cash Flow / Interest Rate {We are not considering growth as there is none}

15,200 = Cash Flow / 6.72%

Cash Flow = 1,021.44

So we need a fund od $15,200 to receive cashflow of $1,021.44 each year at 6.72% yearly for perpetuity.

Here the payment will be made quarterly. So,

Quarterly Payment = Annual Payment / 4

= 1,021.44 / 4

= $255.36

So a scholarship of $255.36 can be received quarterly with a fund size of $15,200

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