A successful investor has decided to set up a scholarship fund for deserving students at her alma mater. Her plan is for the fund to be capable of awarding $25,000 annually in perpetuity. The first scholarship is to be awarded and paid out exactly four years from today. The funds will be deposited into an account immediately and will grow at rate of 4%, compounded semiannually, for the foreseeable future. How much money must the inventor donate today to fund the scholarship?
A. $528,150
B. $549,487
C. $574,253
The right answer is B, but I can’t understand why.
First we will calculate PV of perpetuity: $25,000 / 4.04% (EAR of 4%) = $618,811.88
Then: my calculation: N=8; I/Y=2; PMT=0; FV=618,811.88; CPT PV=-528,149.9822
Right calculation: N=3; I/Y=4,04; FV=-618,811.88; CPT PV=549,487
Question: Why they take only 3 years in calculating PV if they will start awarding ony after 4 years???