Question

4. (15 Points) How long must $1000 remain invested at 4% per month so that $200 per month can be withdrawn forever? Answer the question by drawing a cash flow diagram. Paragraf ВІ Please upload the answer sheet. Tümünü göster X PS W A D B 09:01 30.6.2020

Answer 1

200 200 200 200 200 200 200 200 ol 1 2 N=? 1 2 3 4 5 $1,000

In order to find out the n value the following condition needs to be satisfied

1000(F/A,10,n) = 200(P/A,10,∞)

(F/A,10,n) = [(1+i) ^n – 1 / I] = [(1+0.04) ^n – 1 / 0.04] = [(1.04)^n – 1 / 0.04]

(P/A,10,∞) = 1/ I = 1/0.04 = 25

1000 [(1.04)^n – 1 / 0.04] = 200*25

1000 [(1.04)^n – 1] = 5000*0.04

1000(1.04)^n – 1000 = 200

1000(1.04)^n = 1200

(1.04)^n = 1.2

Using trial and error method

N = 5 months