A wealthy graduate of a local university wants to establish a scholarship to cover the full cost of one student each year in perpetuity at her university To adequately prepare for the administration of the scholarship, the university will begin awarding it starting in three years The estimated full...

A wealthy graduate of a local university wants to establish a scholarship to cover the full cost

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A wealthy graduate of a local university wants to establish a scholarship to cover the full cost of one student each year in at her university. To adequately prepare for the administration of the scholarship, the university will begin awarding it starting in three years. The estimated full cost of one student this year is $45,000 and is expected to stay constant in real terms in the future. If the scholarship is invested to earn an annual real return of 5 percent, how much must the donor contribute today to fully fund the scholarship?
Perpetuity
Perpetuity refers to payments that are made without an end or maturity date. A perpetuity is classified as an annuity, which is something that earns a dividend or receives a payment at a regularly scheduled interval, generally yearly. So, how...

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