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A charitable foundation has​ $500,000 invested in an account that earns​ 7%. The foundation has promised to begin making annual payments to beneficiaries in one​ year, and the first payment will be​ $25,000. The foundation has promised that future payments will grow at a constant rate forever. At what rate can the foundation afford to increase payments assuming that it makes no additional deposits into the​ account?

Respuesta :

abiolataiwo2015

Answer:

2%

Explanation:

Calculation for the rate that the foundation can afford to increase payments

Using this formula

Growth rate=Return-First payment/ Amount Invested

Let plug in the formula

Growth rate=7%- (25,000/500,000)

Growth rate=7%-5%

Growth rate=2%

Therefore the rate that the foundation can afford to increase payments will be 2%

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