You Inherited an Investment Portfolio Worth $1 Million

question 168

Essay

You inherited an investment portfolio worth $1 million.The portfolio earns a return of 9% per year.You want to withdraw money from this portfolio once per year starting one year from today,and you want to continue making withdrawals forever.Furthermore,you want to increase your withdrawals at 3% per year to keep up with inflation.How large can your first withdrawal be?

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Definitions:

Direct Labour

The wages paid to workers directly involved in producing goods or providing services.

Indirect Labour

Labor costs associated with tasks that do not directly contribute to the production of goods or services but are necessary for the operation.

Manufacturing Overhead

All indirect costs associated with the manufacturing process, including utilities, rent, and salaries of employees not directly involved in production.

Period Costs

Expenses that are not directly tied to production activities and are expensed in the period they are incurred, such as selling, general, and administrative expenses.