Quiz: Quiz 5a Chapter 5 TIme Value of Money Time Remaining: 02 06.40 Submit Qu This Question: 6 pts 4 of 11 (0 complete) This Quiz: 59 pts p Creating an endowment Personal Finance Problem On completion of her introductory 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 alums of the university she was attending, to create an endowment. The endowment is to allow three needy students to take the introductory finance course each year in perpetuity The guaranteed annual cost of t on and books for the course ??? S60 per student The endowment wil be deated by making a sigle payment to the university The university expects to earn eactly 6% per year on these funds a. How large an initial single payment must Marla\'s parents make to the university to fund the endowment? b. what amount would be needed to fund the endowment if the university could earn 9% rather than 6% per year on the funds? a. The ital single payment must Mara\'s parents make to the university to fund the endowment is S? (Round to the nearest dolar) b. The amount needed to tund the endowment if the university could earn 9% rather than 8% per year on the funds is s Round to re nearest dolar ) n each of the answer boxes
Gauranteed cost of Tuition and books per student = $600
Number of students = 3
?Total cost per year = 3 * $600 = $1800
Rate at which the University can earn on the endowment fund = 6% per annum
?a. Initial Single Payment towards endowment Maria and her parents should pay if University can earn at 6%:
?= $1800 / 6% = $1800 / 0.06 ............. Because Maria has to sponsor for 3 students every year in perpetuity
?= $30,000
b. Initial Single Payment towards endowment Maria and her parents should pay if University can earn at 9%:
= $1800 / 9% = $1800 / 0.09 ............. Because Maria has to sponsor for 3 students every year in perpetuity
?= $20,000
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