Jack has just retired and has received a lump sum pay-out of $1,300,000. He invests part of this pay-out on an investment property which earns 6 percent per annum and provides a perpetual income to him of $60,000 per year (assuming end-of-year withdrawals). He puts the rest of the pay out in another investment in the form of an annuity which earns 4 percent per annum. He wants to make equal annual withdrawals over the next 10 years from this investment annuity, leaving a balance of zero, to fund some overseas trips and a few other extravagances.

Required

(i) Calculate how much Jack has invested in the investment property.

(ii) Show how much extra Jack can expect to spend each year (assuming end-of-year withdrawals), over and above the $60,000 from the property investment, for the next ten years from the investment annuity. Note: ignore tax in your calculations.

(Accurate to the nearest dollar)

Hi, can someone teach me to concept for this question. For question A, are we supposed to use 60,000/(1- (1+0.03)^10 ? Because after year 10, he would withdraw all his money?

And Part B i have trouble understanding it.