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?
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?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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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