Harry Has Just Inherited $300,000

question 5

Multiple Choice

Harry has just inherited $300,000. Harry has decided to quit his job and go to school full time for the next five years by living off this inheritance. Harry will invest the $300,000 in a money market account that has an 8% interest rate. If Harry's goal is to use up the entire inheritance, approximately what amount can he withdraw from the money market account each year for the next five years? Assume that his first withdrawal will be one year from the day that he sets up the account.

• A)$64,800
• B)$74,400
• C)$75,131
• D)$84,000

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Definitions:

Compounded Semiannually

Compounded semiannually refers to the process of calculating interest on a principal sum where the interest is added to the principal twice a year, causing it to grow at an accelerated rate.

Strip Bond

A debt security that pays no interest and is sold at a discount from its face value, with the investor receiving the bond's face value at maturity.

Compounded Semiannually

The process of applying interest to an investment or loan twice a year, resulting in compound growth.

Face Value

The nominal value or dollar value stated on a security or financial instrument, such as a bond.