If an Endowment Fund of $2,327,000 Is to Be Used

question 100

Multiple Choice

If an endowment fund of $2,327,000 is to be used to pay out grants of $175,000 at the end of every year in perpetuity what effective rate of interest must the funds earn?

• A) 11.61%
• B) 10.06%
• C) 8.93%
• D) 7.52%
• E) 5.44%

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Definitions:

Accrual-Based

An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.

Mutual Ownership

A form of ownership where an institution, such as a mutual insurance company or building society, is owned by its members or policyholders.

Direct Control

The ability of an entity to influence the operations and financial decisions of another entity directly, often through ownership of voting shares.

Indirect Control

The ability to influence or dictate the actions of another company or entity, not through direct ownership, but through other means such as contractual agreements or through a third party.