HWK – Present Value of a Scholarship Fund

Principles of Corporate Finance

Brealey, Myers, and Allen

13th Edition

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A foundation plans to offer an annual scholarship indefinitely, starting a year from now. Upon receiving the scholarship, a student will get a certain amount annually for a set period. After this period, the student must repay the total amount received in equal yearly installments without interest, starting a year after the scholarship ends. Essentially, the foundation is providing an interest-free loan disguised as a scholarship. Given a constant interest rate for all maturities, the task is to determine the initial investment amount the foundation needs to fund all future scholarships.

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