Investment account that generates an annual rate of return

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Lee needs to withdraw an amount of $42,000 at the end of her first quarter of retirement from an investment account that generates an annual rate of return of 7.2%, compounded daily. Afterwards, she continues the quarterly withdrawal with the amount growing at a quarterly inflation rate of 1.0% at the end of each quarter over her expected retirement horizon of 20 years. Assume 360-day year and 30-day month!

(a) State the cash flows pattern and the interest rate type (EAR or EPR or PER) identified for this part. Compute the minimum BEGINNING balance of the investment account required for meeting her retirement needs.

(b) Assume now that Lee has cumulated a nest egg of $3,500,000 in the investment account upon her retirement, compute the amount of inheritance she can leave for her children at the END of her retirement horizon, given your answer in (a).

(c) State the cash flows pattern and the interest rate type (EAR or EPR or PER) identified for this part. Compute the maximum fixed monthly amount that Lee’s descendants can withdraw from the investment account indefinitely, given your answer for the inheritance in (b).

Reference no: EM131025749

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