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Question

You uncle has asked you for some advice as he has just retired and he heard that you know about time value of money calculations. He has $500,000 saved in his pension account, and he expects to live another 20 years. When he dies in 20 years time he would like all his money to be left in a scholarship fund that will pay an amount of $7,500 per year forever. How much is your uncle able to withdraw from his retirement account at the end of each month, starting from the end of this month (assume that today is the ±rst of the month) until he dies in 20 years’ time. Assume the interest rate is 10%, compounded monthly throughout.