North Carolina State University Irwin College of Engineering can earn 4% on its investments, how much should be in its savings account to fund one $5,000 scholarship each year for the next 10 years?

The amount that should be in its savings account is $40,554.48.

Explanation:

To calculate this, formula for calculating the present value of an ordinary annuity is employed as follows:

PV = P * [{1 - [1 / (1 + r)]^n} / r] …………………………………. (1)

Where;

PV = Present value of or amount in the saving =?

P = yearly scholarship payment = $5,000

r = interest rate = 4%, 0.04

n = number of years = 10

Substitute the values into equation (1) to have:

PV = $5,000 * [{1 - [1 / (1 + 0.04)]^10} / 0.04]

PV = $5,000 * [{1 - [1 / 1.04]^10} / 0.04]

PV = $5,000 * [{1 - 0.961538461538461^10} / 0.04]

PV = $5,000 * [{1 - 0.675564168825795} / 0.04]

PV = $5,000 * [0.324435831174205 / 0.04]

PV = $5,000 * 8.11089577935512

PV = $40,554.48

Therefore, the amount that should be in its savings account is $40,554.48.

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