Exploring Payout Annuities

The video tutorial explains how a $100,000 donation to a university can be used to provide annual scholarships over 20 years, given a 4% interest rate. It introduces the concept of a payout annuity and walks through the formula to calculate the annual scholarship amount. The tutorial identifies key variables such as the initial amount, interest rate, and time period, and demonstrates how to solve the annuity equation to determine the annual payout, which is approximately $7,358.18.

What is the purpose of the $100,000 donation made to the university?

• To fund a new building

• To support faculty salaries

• To increase the university's endowment fund

• To provide annual scholarships for 20 years

What type of annuity is being discussed in the scenario?

• Immediate annuity

• Deferred annuity

• Fixed annuity

• Payout annuity

What does the variable 'P naught' represent in the formula?

• The number of years the scholarships are given

• The initial amount of money in the account

• The total amount of scholarships given

• The annual interest rate

How is the interest rate expressed in the formula?

• As a percentage

• As an integer

• As a decimal

• As a fraction

How many years will the scholarships be awarded?

• 10 years

• 15 years

• 20 years

• 25 years

What is the annual interest rate used in the calculations?

• 3%

• 6%

• 4%

• 5%

What does 'n' represent in the annuity formula?

• Duration of the annuity in years

• Number of times interest is compounded per year

• Number of scholarships

• Total amount of donation

What operation is performed first when isolating 'D' in the formula?

• Division

• Multiplication

• Addition

• Subtraction

What is the final step in calculating the scholarship amount?

• Adding the interest rate to 1

• Dividing by the compounded interest expression

• Multiplying by the initial principal

• Subtracting the number of years from the total

How much can the university award annually in scholarships based on the calculations?

• $6,500.00

• $8,000.00

• $7,000.00

• $7,358.18