Reference no: EM132493600

Jack has just retired and has received a lump sum pay-out of $1,500,000. He invests part of this pay-out on an investment property which earns 5 percent per annum and provides a perpetual income to him of $50,000 per year (assuming start-of-year withdrawals). He puts the rest of the pay out in another investment in the form of an annuity which earns 4 percent per annum. He wants to make equal annual withdrawals over the next 15 years from this investment annuity, to fund some overseas trips and a few other extravagances, leaving a balance of zero,

Required

Question (i) Calculate how much Jack has invested in the investment property.

Question (ii) Show how much extra Jack can expect to spend each year (assuming start-of-year withdrawals), over and above the $50,000 from the property investment, for the next 15 years from the investment annuity. Note: ignore tax in your calculations.