Question
Andrew has just retired and has received a lump sum pay-out of $2,000,000. He invests part of this in a growing perpetuity fund which will
Andrew has just retired and has received a lump sum pay-out of $2,000,000. He invests part of this in a growing perpetuity fund which will pay him $45,000 in one year's time and grow at 2% pa in perpeturity. This fund earns 5% pa. He puts the rest of the pay-out in another investment in the form of an annuity which earns 3% pa.He wants to make equal annual withdrawals over the next 5 years from this investment annuity, to fund a few extravagances, leaving a balance of zero,
Required
(i) Calculate how much Andrew has invested in the growing perpetuity fund.
(ii) Show how much extra Andrew can expect to spend each year (assuming five start-of-year withdrawals), over the next 5 years from the investment annuity. Note: ignore tax in your calculations.
Can you show me the equation you used and the workings in Excel function?
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