The alumni association of Seneca College is initiating a one-year drive to raise money for a perpetual scholarship endowment fund. The goal is to offer ten scholarships per year, each worth $5000.
a. How large a fund is required to begin awarding the scholarships one year after the funds are in place if the funds can be invested to earn 5% compounded annually in perpetuity?
b. Suppose that, during its fund-raising year, the alumni association finds an insurance company that will pay 5.5% compounded annually in perpetuity. How much less money does the association need to raise?
c. What dollar amount in scholarships can be awarded annually if the alumni association raises only $750,000? Use the interest rate from Part (b).