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A wealthy graduate of a local univers at her university. To adequ it starting in three years. Th perpetuity awarding constant in real terms in the future. If

A wealthy graduate of a local univers at her university. To adequ it starting in three years. Th perpetuity awarding constant in real terms in the future. If

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A wealthy graduate of a local university wants to establish a scholarship to cover the full cost of one student each year in perpetuity at her university. To adequately prepare for the administration of the scholarship, the university will begin awarding it starting in three years. The estimated full cost of one student this year is $48,000 and is expected to stay constant in real terms in the future. If the scholarship is invested to earn an annual real return of 5 percent, how much must the donor contribute today to fully fund the scholarship?
Transcribed Image Text:A wealthy graduate of a local university wants to establish a scholarship to cover the full cost of one student each year in perpetuity at her university. To adequately prepare for the administration of the scholarship, the university will begin awarding it starting in three years. The estimated full cost of one student this year is $48,000 and is expected to stay constant in real terms in the future. If the scholarship is invested to earn an annual real return of 5 percent, how much must the donor contribute today to fully fund the scholarship?
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