Suppose you have an opportunity to invest in a fund that pays 13% interest compounded annually. Today, you invest $5 comma 000 into this fund. Three years later (EOY 3), you borrow $2 comma 500 from a local bank at 8% annual interest and invest it in the fund. Two years later (EOY 5), you withdraw enough money from the fund to repay the bank loan and all interest due on it. Three years from this withdrawal (EOY 8) you start taking $1 comma 000 per year out of the fund. After five withdrawals of $1 comma 000, you have withdrawn your original $5 comma 000. The amount remaining in the fund is earned interest. How much remains?

Suppose you have an opportunity to invest in a fund that pays 13% interest compounded annually. Today, you invest $5 comma 000 into this fund. Three years later (EOY 3), you borrow $2 comma 500 from a local bank at 8% annual interest and invest it in the fund. Two years later (EOY 5), you withdraw enough money from the fund to repay the bank loan and all interest due on it. Three years from this withdrawal (EOY 8) you start taking $1 comma 000 per year out of the fund. After five withdrawals of $1 comma 000, you have withdrawn your original $5 comma 000. The amount remaining in the fund is earned interest. How much remains?

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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Question

Suppose you have an opportunity to invest in a fund that pays 13% interest compounded annually. Today,
you invest $5 comma 000 into this fund. Three years later (EOY 3), you borrow $2 comma 500 from a local
bank at 8% annual interest and invest it in the fund. Two years later (EOY 5), you withdraw enough money
from the fund to repay the bank loan and all interest due on it. Three years from this withdrawal (EOY 8) you
start taking $1 comma 000 per year out of the fund. After five withdrawals of $1 comma 000, you have
withdrawn your original $5 comma 000. The amount remaining in the fund is earned interest. How much
remains?

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