If John wants to retire with $10,000 per month, how much principal is necessary to generate this amount of monthly income if the interest rate is 15%?
All kinds of information needed here.
For how long does he plan to retire?
Is the 15% rate and annual rate compounded monthly?
Is this a perpetuity?
This is the only information given 😬
What type of interest problems were you studying that resulted in this question?
The way it is worded makes it a bogus question.
In other words, it is a perpetuity like I had asked, but he never replied to my query.
To find out how much principal is necessary to generate a monthly income of $10,000 at an interest rate of 15%, we need to use a financial formula called the "present value of an annuity."
The formula to calculate the present value of an annuity is:
PV = PMT / r
In this formula:
- PV represents the present value or principal amount
- PMT represents the payment or the desired monthly income of $10,000
- r represents the interest rate expressed as a decimal. In this case, it is 15% or 0.15.
By plugging in the values into the formula, we can calculate the required principal amount:
PV = $10,000 / 0.15
PV = $66,667
Therefore, John would need a principal amount of $66,667 to generate a monthly income of $10,000 at a 15% interest rate.
the monthly interest rate is .15/12 = 0.0125 = 1/80
So, if the principal P is to remain unchanged after each month's payment, we need
P/80 = 10000