Suppose you are a nonprofit organization that has cultivated a relationship with a high-net-worth donor. This donor tells you that she is willing to make an investment in one of your programs that she is particularly passionate about. She is willing to establish an endowment for the program that would allow the organization to draw annually from interest earned to be used toward program expenses. The rate of interest is 8%, and the expected amount available to your organization annually is $120,000.How much would your donor need to establish this endowment?

Conversely, your donor has said that she is willing to make an 8-year pledge of $250,000per year in lieu of establishing the endowment. The pledge's conditions stipulate that the donation must be used toward program expenses and cannot be reinvested.

Is there an obvious choice? If not, what factors would you need to weigh to decide which path best fits your organization's needs? If so, are there any conditions by which you would change your mind?

Answer rating: 100% (QA)

To solve this problem we need to calculate the endowment amount required to generate the desired annual income of 120000 and compare it to the 8year p... View the full answer