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( 1 ) A continuous annuity is a steady stream of money that is paid to a person or group out of an interest bearing

(1) A continuous annuity is a steady stream of money that is paid to a person or group out of an interest bearing account. Such an annuity may be established, for exam- ple, by making as initial deposit in a savings account and then making continuous withdrawals to pay the annuity. Suppose an initial deposit of $5,400,000 is put into an account which earns 5.5% interest compounded continuously. Also suppose you immediately start withdrawals at a rate of $300,000 per year. (a) Set up a differential equation that is satisfied by y(t), the amount of money in the account at time t, measured in years. (b) Sketch the solution to this equation given by the initial condition provided. (c) What happens to the account in the long run? (d) If you wanted to live off the $300,000 per year for the rest of your life, how much money do you need to initially deposit? (Note: This is a nice way to live, if you can swing it!)

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