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You deposit $58000 into an account which pays 6% compounded annually. How much can you withdraw at the end of year forever? You can make annual withdrawls of $

You deposit $58000 into an account which pays 6% compounded annually. How much can you withdraw at the end of year forever? You can make annual withdrawls of $

Essentials Of Investments
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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You deposit $58000 into an account which pays 6% compounded annually. How much can you withdraw at the end of year forever?

You can make annual withdrawls of $

Expert Solution
Step 1: Explain the Perpetual Annual withdrawals

Perpetual annual withdrawal refers to the amount of repayment for n number of years forever. This means an annuity generates interest and a portion of interest and principal is paid considering the payment lasts for infinite period of time.

Present space value space of space Perpetual space cash space flows space equals space fraction numerator Perpetual space cash space flows over denominator Interest space rate end fraction Perpetual space cash space flow space equals space PV thin space of space perpetual space cash space flow space cross times space Interest space rate

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