- #1
Zacarias Nason
- 68
- 4
Homework Statement
"A dollar due to be paid to you at the end of n months, with the same interest rate as in Problem 13, is worth only (1.005)^{-n} dollars now (because that is what will amount to $1 after n months). How much must you deposit now in order to be able to withdraw $10 a month forever (starting one month from now)? (Assume the interest rate remains the same forever.)"
Homework Equations
[tex] S_n = \frac{a(1-r^n)}{1-r} [/tex] [tex] S = \frac{a}{1-r} [/tex]
The interest rate of Problem 13 is 6% compounded monthly, or r = 1.005.
The Attempt at a Solution
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I'm almost totally unclear as to how we're supposed to solve this. "Forever" would imply to me that we're not dealing with a finite sum so the top formula isn't relevant, but I'm not sure how this should be dealt with.