lla has just retired and has received a lump sum pay-out of $1,800,000. S vests part of this pay-out in a perpetual investment which earns 4% per nd provides a perpetual income to her of $30,000 per year (assuming en withdrawals). She puts the rest of the pay out in another investment in the growing perpetuity (growth rate of 2% pa) which earns 4% pa. She want hake annual withdrawals (starting in one year) from this growing perpetu und some holidays. Required Calculate how much Ella has invested in the perpetual investment. i) Show how much extra Ella can expect to spend each year (assuming er
lla has just retired and has received a lump sum pay-out of $1,800,000. S vests part of this pay-out in a perpetual investment which earns 4% per nd provides a perpetual income to her of $30,000 per year (assuming en withdrawals). She puts the rest of the pay out in another investment in the growing perpetuity (growth rate of 2% pa) which earns 4% pa. She want hake annual withdrawals (starting in one year) from this growing perpetu und some holidays. Required Calculate how much Ella has invested in the perpetual investment. i) Show how much extra Ella can expect to spend each year (assuming er
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Ella has just retired and has received a lump sum pay-out of $1,800,000. She
invests part of this pay-out in a perpetual investment which earns 4% per annum
and provides a perpetual income to her of $30,000 per year (assuming end-of-year
withdrawals). She puts the rest of the pay out in another investment in the form of
a growing perpetuity (growth rate of 2% pa) which earns 4% pa. She wants to
make annual withdrawals (starting in one year) from this growing perpetuity to
fund some holidays.
Required
(i) Calculate how much Ella has invested in the perpetual investment.
(ii) Show how much extra Ella can expect to spend each year (assuming end-of-
year withdrawals), over and above the $30,000 from the perpetual investment,
from the growing perpetuity. Note: ignore tax in your calculations.
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