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A donor gives $100,000 to a university, and specifies that it is to be used to give annual scholarships for the next 20 years. If the university can earn 4% interest, how much can they give in scholarships each year?

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sqdancefan

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Answer:

  $7,358

Step-by-step explanation:

Assuming the interest is compounded annually, the amortization formula is useful here.

  A = Pr/(1 -(1+r)^-t)

A is the annual scholarship, P is the principal invested at rate r for t years.

  A = $100,000(0.04)/(1 -1.04^-20) = $7,358.18

The university could give $7,358 in scholarships each year.