Answered

Suppose that on your 21st birthday you are given a $1,000,000 trust fund. what interest rate must you earn to ensure that if you withdraw $20,000 per year there is money in the account forever?



Answer :

The right response is 5%.

  • The amount a lender charges a borrower is called an interest rate, and it is expressed as a percentage of the principle, or the lent amount. Typically, a loan's interest rate is expressed as an annual percentage rate, or APR (APR).

According to The Question,

The provided data are listed below in accordance with the scenario:

  • $1,000,000 yearly withdrawal
  • $50,000 withdrawn annually

Consequently, we can get the interest rate using the formula below:

Interest rate equals the annual withdrawal rate.

  • The calculation yields Interest Rate = $50,000 divided by $1,000,000, or 0.05 percent,
  • or 5%.

So, 5% should be the interest rate.

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