Question: A donor wishes to endow an engineering scholarship at USYD. The endowment may be made by a lump-sum deposit to a special foundation set up by the university for such purposes. The foundation director believes that its funds will earn at least 8% interest per year, tax free, for the indefinite future.
The scholarship is to provide $10,000 per year. On the assumption that the scholarship will start at the end of the first year and continue forever, what endowment must the donor make now?