Question

Sue recently won the lottery and took in over $10,000,000 in winnings after-tax. After purchasing a home, she doesn't intend to live a lavish lifestyle and she also wants to help to provide for her 3 children. She wants to set up some investments which will provide $2,000 per month in supplemental income to herself and each of her 3 children for an indefinite period of time. After talking this through with an investment advisor, the advisor claims that he should be able to achieve an expected rate of return of 3.0% on an annual basis. What amount must Sue invest per person in order to receive the $2,000 per month indefinitely?
[A] Sue must invest approximately $20,000 per person.[B] Sue must invest approximately $66,000 per person.[C] Sue must invest approximately $200,000 per person.[D] Sue must invest approximately $800,000 per person.

Answer 1

Answer:

.[D] Sue must invest approximately $800,000 per person

Explanation:

Sue requires $ 2000 supplemental monthly income, per person

Interest rate 3 % per year

Requires income per year = $ 2000 x 12 = $24,000

$ 24000, represents 3 % of investments required

i.e. 3/100 %= $ 24,000 per person

0.03% =$24,000

100 % investment =24000/0.03

        =$ 800,000.00