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A donor wishes to endow a scholarship at a certain universit

Paper help Economics A donor wishes to endow a scholarship at a certain universit

Economics

A donor wishes to endow a scholarship at a certain universit

A donor wishes to endow a scholarship at a certain university. The endowment may be made by a lump-s… Show more A donor wishes to endow a scholarship at a certain university. The endowment may be made by a lump-sum deposit to a special foundation set up by the university for such purposes. The foundation director believes that its funds will earn at least 8% interest per year, tax free, for indefinite future. The scholarship is to provide $5,000 the first year increasing by $500 each year thereafter to a maximum of $10,000 per year. On the assumption that the scholarship will start at the end of the first year and continue forever, what endowment must the donor make? (Hint: this is a capitalized cost problem that has an infinite life) • Show less

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