John Has Just Been Employed by a Prestigious Firm,drawing an Annual

question 9

Multiple Choice

John has just been employed by a prestigious firm,drawing an annual salary of $300 000,paid at the end of each year.He plans to work for five years before retiring.He buys a new luxury home with mortgage repayments of $5000 per month for the next 20 years (payable at the end of each month) ,and donates $10 000 per annum forever to his favourite charity.What annual amount,in present value terms,can John withdraw for the first five years of his retirement from the remainder of his savings? Assume an annual interest rate of 6% p.a.

• A)$93 926
• B)$246 819
• C)$94 754
• D)$112 754

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Definitions:

Dividend Revenue

Income earned from owning shares of a company, paid out from the company's earnings.

Cash Dividend

A cash payment of earnings made by a company to its stockholders.

Equity Securities

Financial instruments representing ownership interest in a company, such as stocks.

Available-for-Sale Debt Securities

Financial assets acquired primarily for selling in the short term but may be held for a longer period, reported at fair market value on balance sheets.