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Auntie Kitty sells her home for $200,000, which is then invested to earn 4 percent annually
Auntie Kitty sells her home for $200,000, which is then invested to earn 4 percent annually. If her life expectancy is five years, what is the maximum amount she can annually spend on a nursing home, doctors, and taxes? Use Appendix D to answer the question. Round your answer to the nearest dollar. The maximum amount that can be annually spend is 5 890,400 .
If the return were to double to 8 percent, will the amount she may spend each year more than double? Use Appendix D to answer the question. Round your answer to the nearest dollar. If the return were to double, the amount that can be annually spend will more than double 5' and will be equal to $
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Expert Solution
1) Computation of Maximum Amount she can invest:
Given,
Number of periods = 5 years
Interest rate = 4%
Present value = $200,000
PV= PMT * PVAIF(I,N)
$200,000 = PMT * PVAIF(4%,5)
$200,000 = PMT * 4.4518 (PVIF Values taken using Appendix D)
PMT = $200,000/4.4518
PMT = $44,925.42
The maximum amount that can be annually spent = $44,925.42
2) Computation of Maximum Amount she can invest:
Given,
Number of periods = 5 years
Interest rate = 4%*2 = 8%
Present value = $200,000
PV= PMT * PVAIF(I,N)
$200,000 = PMT * PVAIF(8%,5)
$200,000 = PMT * 3.9927 (PVIF Values taken using Appendix D)
PMT = $200,000/3.9927
PMT = $50,091.29
The maximum amount that can be annually spent = $50,091.29
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