11 A wealthy businessman wants to start a permanent fund for

11. A wealthy businessman wants to start a permanent fund for supporting research directed toward sustainability. The donor plans to give equal amounts of money for each of the next 5 years, plus one now (i.e., six donations) so that $100,000 per year can be withdrawn each year forever, beginning in year 6. If the fund earns interest at a rate of 8% per year, how much money must be donated each time?

Solution

As donation fund earns interest of 8% per year, the total amount of donation fund required to earn $100,000 per year interest is = $100,000*100/8 = $12,50,000

Since the donor plans to give donation of equal amount each year, the donation needed to be made each time = $1250000/6= $208333.33 (As total six donations are to be given by the donor)