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perpetuity

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › perpetuity

  • This topic has 1 reply, 2 voices, and was last updated 1 month ago by John Moffat.
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    Posts
  • May 1, 2023 at 5:58 pm #683809
    kashafaltaf500
    Participant
    • Topics: 29
    • Replies: 10
    • ☆

    $100,000 is deposited in a bank account paying 8% interest each year.
    Required
    Calculate the maximum sum that can be withdrawn from the account at
    the end of each year in perpetuity.

    hi ca u please explain how TO solve this? is there any specific formula or technique?

    May 2, 2023 at 9:32 am #683830
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 52529
    • ☆☆☆☆☆

    You should know from my free lectures that to arrive at the present value of a perpetuity we multiply the annual cash flow by 1/the interest rate.

    Here we know the interest rate and we know that the present value has to be $100,000 and so you can work backwards to get the annual cash flow.

    The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.

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