Question

10. A permanent scholarship fund is started through a donation of $100,000. If five scholarships of $5,000 each are awarded each year beginning ten years from now, Calculate the rate of return for the invested money

Answer 1

Answer:

10 %

Explanation:

The rate of return for the invested money can be calculated as follows

100,000 = 5 (5,000) (P/F, i, 9)

i

Try i = 10%:

$100,000 compared to 250,000(0.4241)

Result: $100,000 < $106,025;

The Rate of return is too big

Try i = 12%:

$100,000 compared to 208,333(0.3606)

Result: $100,000 & gt; $75,125;

The Rate of return is too small

i ˜ 10.5%