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Calculating the annual amount of scholarship

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The school of engineering will be given a gift of $50,000 to be used for a scholarship each year. What amount can be given to a student each year beginning when the gift is given if the scholarship is to be given every year forever. The interest rate is expected to be 10% for the first 10 years, and then it is expected to drop to 6% and stay there indefinitely, but the amount of scholarship is to be kept constant (forever).

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The solution describes the steps to calculate the annual amount of scholarship in the given scenario.

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Present Value of given annuity=$50000
Rate of interest for first ten years=r1=10%
Rate of interest for after ten years=r1=6%
Period=n1=10
Let annual payment made is R.

Present Value of annuity can be calculated as under

PV= Present Value ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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