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$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Calculate the maximum sum that can be withdrawn from the account at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?
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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