A $750,000 endowment fund has been created to provide annual scholarships, to perpetuity, for academic performance

Finance Nov 03, 2020

A $750,000 endowment fund has been created to provide annual scholarships, to perpetuity, for academic performance. If the fund is earning interest at 5.6% compounded semi-annually, how much are the end of year scholarship payments?

Expert Solution

Half yearly interest rate = 5.6%/2 = 2.8%

Since interest is compounding semi annually, So, interest for 1 year will be

= 750000 * (1+0.028)² - 750000

= 750000 * (1.028)² - 750000

= 792588 - 750000

= $ 42,588

So, scholarship payment will be $ 42,588 at the end of every year.

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