Suppose you accumulated $500,000, perhaps from many years of saving. You put the money in a savings plan earning 6% compounded monthly. If you want to live off the interest without disturbing the $500,000 balance, what amount can you withdraw at the beginning of each month?

Question

Mathematics

Erika

27 October, 23:55

Suppose you accumulated $500,000, perhaps from many years of saving. You put the money in a savings plan earning 6% compounded monthly. If you want to live off the interest without disturbing the $500,000 balance, what amount can you withdraw at the beginning of each month?

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Answers (1)

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Stacy Hammond · Answer 1

The monthly interest rate is 6%/12 = 0.5%. The interest earned each month is

0.005*$500,000 = $2500

You can withdraw $2500 each month without disturbing the principal amount.