Kevin works as an analyst in an investment bank, and he tries to build a time series model for monthly U.S. inflation (denoted ) from Feb. 1971 to Dec. 2000. He first tried the Autoregressive AR(1) modelusing the previous month's inflation as the independent variable:

The table below shows the results of estimation.

AR(1) model: U.S. Monthly Inflation Feb. 1971 to Dec. 2000

Regression Statistics

R Square0.3808

Standard Error3.4239

Observations359

Durbin-Watson2.3059

Coefficients

Standard Error

t Stat

Intercept ( )

1.9658

0.2803

7.0119

Lag1 ( )

0.6275

0.0410

15.3049

Autocorrelation of the Residual

Lag

Autocorrelation

Standard Error

t Stat

1

-0.1538

0.0528

-2.9142

2

0.1097

0.0528

2.0782

3

0.1657

0.0528

1.2442

4

0.10920

0.0528

1.7434

James has been employed by ABC Co.Ltd, drawing an annual salary of $120000, paid at the end of each year. He plans to work for five years before retiring. He buys a new home with mortgage repayments of $2800 per month for the next 20 years (payable at the end of each month), and donates $2000 per annum forever to his favourite charity. Assume an annual interest rate of 6% p.a, what annual amount, in present value terms, can James withdraw for the first five years of his retirement from the remainder of his savings?