6- Linda O'Shay deposited $50,000 in a savings account as a perpetual trust. She believes the account will earn 8% annual interest during the first 10 years and 4% interest thereafter. The trust is to provide a uniform end-of-y 26 scholarship at the university. What uniform amount could be used for the student scholarship each year, beginning at the end of the first year and continuing forever?

6- Linda O'Shay deposited $50,000 in a savings account as a perpetual trust. She believes the account will earn 8% annual interest during the first 10 years and 4% interest thereafter. The trust is to provide a uniform end-of-y 26 scholarship at the university. What uniform amount could be used for the student scholarship each year, beginning at the end of the first year and continuing forever?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

ChapterM: Time Value Of Money Module

Section: Chapter Questions

Problem 17P: Comprehensive The following are three independent situations: 1. K. Herrmann has decided to set up a...

See similar textbooks

Similar questions

Linda O’Shay deposited $50,000 in a savings account as a perpetual trust. She believes the account will earn 8% annual interest during the first 10 years and 4% interest thereafter. The trust is to provide a uniform end-of-year scholarship at the university. What uniform amount could be used for the student scholarship each year, beginning at the end of the first year and continuing forever?
Emma wants to donate $1,000,000 to establish a fund to provide an annual scholarship in perpetuity. The fund will earn an interest rate of j4=5% p.a. effective and the first scholarship will be first awarded 2.5 years after the date of the donation. (b) Assume that the fund's earnings rate rate has changed from j4=5% to j4=4.75% one year before the first scholarship payment. How much does Emma need to add to the fund at that time (one year before the first scholarship payment) to ensure that scholarship amount will be unchanged (rounded to two decimal places)?
Emma wants to donate $1,000,000 to establish a fund to provide an annual scholarship in perpetuity. The fund will earn an interest rate of j4=4.12% p.a. effective and the first scholarship will be first awarded 2.5 years after the date of the donation. (a) What is the amount of the annual scholarship (rounded to two decimal places)? (b) Assume that the fund's earnings rate rate has changed from j4=4.12% to j4 = 3.87% one year before the first scholarship payment. How much does Emma need to add to the fund at that time (one year before the first scholarship payment) to ensure that scholarship amount will be unchanged (rounded to two decimal places)? (a) What is the amount of the annual scholarship (rounded to two decimal places)? a. 44494.20 b. 46355.87 C. 41840.92 d. 43772.21 (b) Assume that the fund's earnings rate rate has changed from 4-4.12% to 4-3.87% one year before the first scholarship payment. How much does Emma need to add to the fund at that time (one year before the first…
Emma wants to donate $1,000,000 to establish a fund to provide an annual scholarship in perpetuity. The fund will earn an interest rate of j4=5% p.a. effective and the first scholarship will be first awarded 2.5 years after the date of the donation. (a) What is the amount of the annual scholarship (rounded to two decimal places)?
8. Creating an endowment On completion of her LETU Principles of Finance course, Marla Lee was so pleased with the amount of useful and interesting knowledge she gained that she convinced her parents, who were wealthy alumni of the university she was attending, to create an endowment. The endowment will provide for three students from low-income families to take the introductory finance course each year in perpetuity. The cost of taking the finance course this year is $1500 per student (or $4500 for 3 students), but that cost will grow by 2% per year forever. Marla's parents will create the endowment by making a single payment to the university today. The university expects to earn 8% per year on these funds. a) How much will Marla's parents have to give the university today to fund the endowment if it starts paying out cash flow next year? b) What amount would be needed to fund the endowment if the university could earn 12% rather than 8% per year on the funds?
Sam wants to donate $1,000,000 to establish a fund to provide an annual scholarship in perpetuity. The fund will earn an interest rate of j4-3.81% p.a. effective and the first scholarship will be first awarded 2.5 years after the date of the donation. (b) Assume that the fund's earnings rate rate has changed from 4-3.81% p.a. to j4-3.56% p.a. one year before the first scholarship payment. How much does Sam need to add to the fund at that time (one year before the first scholarship payment) to ensure that scholarship amount will be unchanged (rounded to two decimal places)? Question 9Answer a. 78309.64 b. 74276.05 C. 71226.96 d. 75395.75
Kara Delaney received a $6,000 gift for graduation from a relative. If she deposits the entire amount in an account paying 2 percent, what will be the value of this gift in 10 years? (Exhibit 1-A, Exhibit 1-B, Exhibit 1-C, Exhibit 1-D)
Mike wants to donate $5,000,000 to establish a fund to provide an annual scholarship in perpetuity. The fund will earn an interest rate of 4.57% p.a. compounded half-yearly (j2=4.57% p.a.) and the first scholarship will be first awarded 3.5 years after the date of the donation. (a) What is the amount of the annual scholarship (rounded to two decimal places)? Question 9 Answer a. 127913.37 b. 255507.69 c. 260410.57 d. 258749.57 Mike wants to donate $5,000,000 to establish a fund to provide an annual scholarship in perpetuity. The fund will earn an interest rate of 4.57% p.a. compounded half-yearly (j2=4.57% p.a.) and the first scholarship will be first awarded 3.5 years after the date of the donation. (b) Assume that two years after the donation, Mike needs to withdraw $1,000,000 from the fund and use the remaining amount to provide an annual scholarship in perpetuity. The time of the first scholarship will be unchanged (3.5 years after the date of the donation). What is the new annual…
Mike wants to donate $5,000,000 to establish a fund to provide an annual scholarship in perpetuity. The fund will earn an interest rate of 4.93% p.a. compounded half - yearly (j2 = 4.93% p.a.) and the first scholarship will be first awarded 3.5 years after the date of the donation. (a) What is the amount of the annual scholarship (rounded to two decimal places)? Question 9Answer a. 139208.15 b . 283816.22 c. 278013.64 d. 281847.77
3. Shondra wishes to accumulate a college fund for her daughter by making 17 equal annual deposits be- ginning on the daughter's first birthday. The fund will be used to make four annual tuition payments beginning on the daughter's 18th birthday. The first tuition payment will be $15,000, with the subsequent payments increasing by 8% each year. Shondra earns interest on her investment at a 5% annual effective rate. Determine the minimum amount of her annual deposit. A. Less than $2,200 B. At least $2,200, but less than $2,400 C. At least $2,400, but less than $2,600 D. At least $2,600, but less than $2,800 E. At least $2,800
2. An endowed scholarship is one funded by a single deposit in a permanent scholarship account by a successful alum. The endowment deposit amount remains untouched and unchanged in the scholarship account. The interest accumulated each year is taken out and paid to a deserving student at the end of each year in a scholarship award. If an endowment earns 3.25% annual interest compounded monthly, a. What is the effective interest rate? b. What would the annual scholarship award be if the amount of the endowment was $300,000?
21) An 8-year-old child wins $1 000 000 from a lottery. The law requires that this money be set aside in a trust fund until the child reaches 18. The child’s parents decide that the money should be paid out in 20 equal annual payments with the first payment at age 18. Calculate these payments if the trust fund pays interest at ji = 5%.