A generous benefactor to a local ballet plans to make a one-time endowment that would provide the ballet with $150,000 per year into perpetuity. The rate of interest is expected to be 5 percent for all future time periods. How large must the endowment be?
A) $ 300,000
B) $3,000,000
C) $ 750,000
D) $1,428,571

Question

Quizplus · Accepted Answer

To find the size of the endowment needed to provide $150,000 per year into perpetuity at an interest rate of 5%, you use the formula for perpetuity: Endowment = Annual Payment / Interest Rate. Plugging in the numbers: Endowment = $150,000 / 0.05 = $3,000,000.

A Generous Benefactor to a Local Ballet Plans to Make