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17 November, 16:43

Suppose that on your 21st birthday you are given a $1,000,000 trust fund. What interest rate must you earn to ensure that if you withdraw $50,000 per year there is money in the account forever

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  1. 17 November, 17:06
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    The correct answer is 5%.

    Explanation:

    According to the scenario, the given data are as follows:

    Annual withdrawal = $1,000,000

    Annual withdrawal = $50,000

    So, we can calculate the interest rate by using following formula:

    Interest rate = Annual withdrawal : Annual withdrawal

    by putting the value in the formula, we get

    Interest Rate = $50,000 : $1,000,000

    = 0.05

    Or 5%

    Hence, the Interest rate should be 5%.
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