Question

John uses his retirement fund to buy a perpetuity-due of $20,000 per year based on an annual

nominal yield of interest i = 8% compounded monthly. Find John’s retirement fund.

Answer 1

Nominal yield of interest$=8\%$ compounded monthly

So, effective rate of annual interest$=(1+\frac{0.08}{12})^{12}-1=8.299\%$

Let retirement fund be R

Here, $\$20000=R+(R\times0.08299\times1)$

Hence, retirement fund, $R=\$18467.39$