Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A and B please You've just turned 40 years old, and you've worked very hard. It's paid off. You're both professionally and financially successful, and

A and B please
image text in transcribed
You've just turned 40 years old, and you've worked very hard. It's paid off. You're both professionally and financially successful, and you'd like to leave a long lasting legacy after you retire. You've decided to fund an infinite stream of college scholarships for under privileged students. More specifically, in order to fund the scholarships, you've decided to make equally sized annual deposits into an investment account that is expected to earn 7% per year, forever. You'll make the first deposit of $50,000 into the account on your 45th birthday. Thereafter you'll make nine additional deposits of the same size on your 46h, 47h,... and 54h birthdays. After your 10h deposit, you'll let the money remain in the account, where it will continue to earn 7% per year. You've decided to have the scholarships begin on your 60th birthday, and they will continue every year thereafter-forever. More specifically, on your 60th birthday, you'll withdraw a total of $100,000 which will be immediately distributed to students in need. Withdraws from the account will continue every year thereafter (forever) and you'd like to have them grow (or shrink) at a constant rate each year. Throughout the course of the investment (from age 40 to the end of time) all money in the account will earn 7% per year. Part (A) Immediately before the first withdraw, how much money is there in the account? Part (B) Determine the growth rate, g, associated with the size of the never ending scholarship withdraws. For example, is there enough money saved to have the size of the scholarships grow at 4.354% per year? 9.205% per year? -4.275% per year? Determine the growth rate to at least 4 significant digits. Enter your answer as a decimal, not as a percent

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Contemporary Issues In Development Finance

Authors: Joshua Yindenaba Abor, Robert Lensink, Charles Komla Delali Adjasi

1st Edition

1138324329, 978-1138324329

More Books

Students also viewed these Finance questions