What is the purchasing power of the money

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Your parents are about to retire and they have $1,000,000 with which to do so. They plan to live 25 more years after retirement. They expect to earn 5% per year, which compounds monthly, on this money. How much money can they withdraw from this Total each month and have a 0 balance at the end of 25 years?

In problem #3, the rate of interest is a nominal rate. If your parents expect the rate of inflation to average 3% per year for the 25 years, what is the purchasing power of the money they withdraw each year? Again, assume the balance (or FV) at the end of year 25 is $0. (To solve this, use the real interest rate r, which is found by rearranging the Fisher equation of i = r + p , where i is the nominal rate, r the real rate, and p the inflation rate).

Reference no: EM132203983

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