You deposit $1.2 milion into vour account to cover expenses in the next 12 years. The account earns interest at the rate of 4%, compounded annually. Assume you expect the balance of the account to be $0 at the end of the 12th year. A) What annual level of living expenses Will your initial deposit support. (what equal annual withdrawal can you make for the next 12 years )? b) Suppose you realize vour living expenses will increase at an annual rate of 2% due to inflation. Determine the updated annual spending plan in line this model how much can you withdrawal at the end of the first year. knowing that your withdrawal will increase by 2% each year? C) Suppose the initial deposit is still planned to support vour equal annual expenses in the next 10 years as in part a but don't need to withdraw any money from your account for the first 6 years. You will withdraw rom your account annually starting from the end of year 7 till the end of year 12. What annual level of living expenses will your initial deposit support? D) Based on part c suppose now that your living expenses will increase at an annual rate of 2% due to inflation. Determine how much you can withdraw at the end of year given that your withdrawals will increase in line with inflation from the end of year 7 till the end of year 12 * Please use factor table and interest formulas *

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 44P

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You deposit $1.2 milion into vour account to cover expenses in the next 12 years. The account earns interest at the rate of 4%, compounded annually. Assume you expect the balance of the account to be $0 at the end of the 12th year. A) What annual level of living expenses Will your initial deposit support. (what equal annual withdrawal can you make for the next 12 years )? b) Suppose you realize vour living expenses will increase at an annual rate of 2% due to inflation. Determine the updated annual spending plan in line this model how much can you withdrawal at the end of the first year. knowing that your withdrawal will increase by 2% each year? C) Suppose the initial deposit is still planned to support vour equal annual expenses in the next 10 years as in part a but don't need to withdraw any money from your account for the first 6 years. You will withdraw rom your account annually starting from the end of year 7 till the end of year 12. What annual level of living expenses will your initial deposit support? D) Based on part c suppose now that your living expenses will increase at an annual rate of 2% due to inflation. Determine how much you can withdraw at the end of year given that your withdrawals will increase in line with inflation from the end of year 7 till the end of year 12 * Please use factor table and interest formulas *

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