Question

Frances retires from work with $700,000 in her superannuation account. She invests this money in a fund which earns interest paid monthly at a rate of j12= 4.68% p.a. Frances plans to withdraw $4000 each month, starting in a month’s time to cover her living expenses. a) Determine how long Frances can afford to live before she runs out of money. b) After 5 years (60 payments) Frances has to have an emergency hip replacement procedure. This costs $110,000, and she pays for it withdrawing the money from her investment fund. Illustrate all of Frances’ cashflow as a fully labelled time line diagram. c) Determine how much this reduces how long she can now afford to live before she runs out of money.

          Frances retires from work with $700,000 in her superannuation account. She invests this money in a fund which earns interest paid monthly at a rate of j12= 4.68% p.a. Frances plans to withdraw $4000 each month, starting in a month’s time to cover her living expenses.

a)	Determine how long Frances can afford to live before she runs out of money.
b)	After 5 years (60 payments) Frances has to have an emergency hip replacement procedure. This costs $110,000, and she pays for it withdrawing the money from her investment fund.  Illustrate all of Frances’ cashflow as a fully labelled time line diagram.
c)	Determine how much this reduces how long she can now afford to live before she runs out of money.

Added by Robert N.

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