Question

Apple wants to establish foundation center that will make annual scholarship payments of $23000 per year forever. Apple wants the foundation to make the first annual $23000 scholarship payment in 7 years from today and she wants scholarship payments of $23000 per year to continue every year after that first payment. To fund the foundation , apple plans to make equal annual donations to the foundation for six years. How much does appl need to donate to the foundation each year for 6 years to have exactly enough in the foundation to make the planned annual scholarship payments if she makes her first annual donation to the foundation today, the funds held by the foundation are expected to earn 4.7 percent per year?

Answer 1

The first step is to find the value of the fund using present value of perpetuity.

Value of the fund six years from now = $ 489,361.7

Using future value of annuity equation, we can find out the annual payments to be made for six years that will equal the value of the fund.

Solving for A in the above equation

The value of annual payment to have exactly enough in the fund = $ 72489.79 $ 72490