Reference no: EM132488379

Point 1: Your grandfather is 65 years old and is upset with the Fed's efforts to keep interest rates low. While he acknowledges that low interest rates help stimulate the economy, he claims that "they are simply killing my retirement plans - to the point that I may have to go back to work!" He also points out that because of his age, he cannot put all of his money into stocks because of the potential of a significant market drop. Given your newfound expertise with finance, your grandfather turns to you for some help in adjusting his retirement budget and understanding how the currently low interest rates are affecting him. Your grandfather tells you that he has $600,000 left in his retirement account. To maintain his current standard of living, he will need to withdraw $40,000 per year (ignore any taxes for simplicity). Your grandfather expects to live until he is 90 (i.e., for 25 more years).

Question (a) Calculate the constant amount that he could withdraw at the end of each year for the next 25 years under typical interest rates of 4.5% per year.

Question (b) Calculate the constant amount that he could withdraw at the end of each year for the next 25 years using the current low interest rate of 1.5% per year.