(Please include a cash flow diagram) A teacher is interested to open investments account at an interest rate of 12% compounded semiannually. The scheme allows for the investor to withdraw a certain annuity for the first 3 years. This annuity increases by a factor of 1.5 for the next three years and becomes twice the initial annuity thereafter. If he wants to withdraw a perpetuity of $65,000, how much should he deposit?

(Please include a cash flow diagram) A teacher is interested to open investments account at an interest rate of 12% compounded semiannually. The scheme allows for the investor to withdraw a certain annuity for the first 3 years. This annuity increases by a factor of 1.5 for the next three years and becomes twice the initial annuity thereafter. If he wants to withdraw a perpetuity of $65,000, how much should he deposit?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 6MC: You want to invest $8,000 at an annual Interest rate of 8% that compounds annually for 12 years....

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

(Please include a cash flow diagram)
A teacher is interested to open investments
account at an interest rate of 12%
compounded semiannually. The scheme
allows for the investor to withdraw a certain
annuity for the first 3 years. This annuity
increases by a factor of 1.5 for the next three
years and becomes twice the initial annuity
thereafter. If he wants to withdraw a
perpetuity of $65,000, how much should he
deposit?

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