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Could you please explain what are we trying to calculate in the following question and how would it be found.
$100,000 has been deposited into a bank account paying 8% interest each year. Calculate the maximum sum that can be withdrawn at the end of each year in perpetuity. The answer is $8000.
Have you actually watched my free lectures (because you cannot expect me to type them out here 🙂 ) ?
The question is asking what is the most that they can take out of the account each year for ever.
Since the principal is earning 8% a year, the interest is 8,000 a year. They can take this out and the 100,000 is still there earning interest. If they took out more than 8,000 then the extra would reduce the amount on deposit and the interest from then on would be lower than 8,000.
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