Question

Johnson C. Smith has asked you to start a marching band endowment to fund scholarships for inner city kids. This endowment will supply $100,000 in scholarship annually. There is no end date for this endowment and it is expected to grow 4% annually with an interest rate of 8%. In order to properly fulfill the objections set forth with this endowment how much funding is needed to kick start this endowment?

Answer 1

This is an example of present value calculation for growing perpetuity.

PV = $2,500,000

This is the value needed to kick start endowment.