1. Caleb Brewster did an excellent job saving for retirement. He was able to sav
ID: 2723058 • Letter: 1
Question
1. Caleb Brewster did an excellent job saving for retirement. He was able to save $1,000,000 in an account that pays 12 percent per year. His plan was to eventually withdraw all his money by paying himself in equal installments every month during his 20 years of retirement, which he did for exactly 10 years. However, poor Mr. Brewster died exactly 10 years after he retired before receiving the remaining monthly payments he was due. How much money was left in Mr. Brewster's account on the day he died?
2. Crazee Enterprises Corporation just paid a dividend and it expects that dividend to grow by 10 percent for the next three years. After that, the dividend is expected to grow at a constant rate of 5 percent in perpetuity. If the company's stock is currently selling for $72 per share and the required return is 10 percent, what is the amount of the NEXT dividend, i.e., D1?
Explanation / Answer
At 12% interest rate the amount which can be withdrawn monthly is 10,586.23.
Total interest earned would be 1,540,696.
Money left at the end of 10th year is $759,864
Month Remaining Balance 1 $989,098.16 2 $988,087.30 3 $987,066.33 4 $986,035.15 5 $984,993.65 6 $983,941.75 7 $982,879.32 8 $981,806.27 9 $980,722.49 10 $979,627.88 11 $978,522.31 12 $977,405.69 13 $976,277.91 14 $975,138.84 15 $973,988.39 16 $972,826.43 17 $971,652.85 18 $970,467.53 19 $969,270.37 20 $968,061.23 21 $966,840.00 22 $965,606.55 23 $964,360.78 24 $963,102.54 25 $961,831.72 26 $960,548.20 27 $959,251.84 28 $957,942.51 29 $956,620.10 30 $955,284.45 31 $953,935.46 32 $952,572.97 33 $951,196.85 34 $949,806.98 35 $948,403.21 36 $946,985.40 37 $945,553.41 38 $944,107.10 39 $942,646.33 40 $941,170.95 41 $939,680.81 42 $938,175.78 43 $936,655.69 44 $935,120.41 45 $933,569.77 46 $932,003.62 47 $930,421.82 48 $928,824.19 49 $927,210.59 50 $925,580.85 51 $923,934.82 52 $922,272.32 53 $920,593.20 54 $918,897.29 55 $917,184.42 56 $915,454.42 57 $913,707.13 58 $911,942.35 59 $910,159.94 60 $908,359.69 61 $906,541.45 62 $904,705.02 63 $902,850.22 64 $900,976.88 65 $899,084.81 66 $897,173.81 67 $895,243.71 68 $893,294.30 69 $891,325.40 70 $889,336.82 71 $887,328.34 72 $885,299.78 73 $883,250.94 74 $881,181.60 75 $879,091.58 76 $876,980.65 77 $874,848.61 78 $872,695.26 79 $870,520.37 80 $868,323.73 81 $866,105.12 82 $863,864.33 83 $861,601.13 84 $859,315.30 85 $857,006.61 86 $854,674.83 87 $852,319.74 88 $849,941.09 89 $847,538.66 90 $845,112.20 91 $842,661.48 92 $840,186.25 93 $837,686.27 94 $835,161.29 95 $832,611.06 96 $830,035.33 97 $827,433.84 98 $824,806.34 99 $822,152.56 100 $819,472.24 101 $816,765.12 102 $814,030.93 103 $811,269.39 104 $808,480.24 105 $805,663.20 106 $802,817.99 107 $799,944.33 108 $797,041.93 109 $794,110.51 110 $791,149.77 111 $788,159.42 112 $785,139.18 113 $782,088.72 114 $779,007.77 115 $775,896.00 116 $772,753.12 117 $769,578.81 118 $766,372.75 119 $763,134.64 120 $759,864.14Related Questions
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