An endowment fund is created to provide for a prize of #200, 000 every year, the fund can be invested at 5% per annum compound interest. Calculate the amount of the endowment

Answer 1

you can actually just divide these amounts directly based on the concept of a perpetuity!

amount of endowment = $200,000 / 0.05 = $4,000,000

Answer 2

If I'm reading the problem correctly, it sounds like this is a PV calculation for an annuity in perpetuity.

That equation is PV = A/R where A is the Annual Payment, and R is the rate.

Using that formula, the PV of the Endowment Fund would be $4,000,000.

Hope this helps.

-Jose