clarify Mr. Niaz is going to deposit RM550 into an account at the beginning of each...

clarify

Mr. Niaz is going to deposit RM550 into an account at the beginning of each of 15 years. The account will then be left to compound for an additional 25 years. At the end of the 41st year, he will begin receiving a perpetuity from the account. If the account pays 12 percent, how much each year will Mr. Niaz receive from the perpetuity?

Solutions

Expert Solution

Deposit of RM 550 at the beginning constitutes an Annuity Due.

Future value of the annuity due at the end of 15 years= RM22,964.30 as follows:

Value of this amount after further 25 years (Present value of perpetuity)= 22964.30*(1+12%)^25

= 22964.30*17.00006441= RM 390,394.65

Cash flow of perpetuity= Present value*Interest rate

Therefore, annual amount to be received from the perpetuity after 41 years

= RM 390,394.65*0.12 = RM46,847.36

jeff jeffy answered 1 year ago

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