Question

A college professor won $85,000 in the state lottery; income taxes will take about half the amount. She plans to spend her sabbatical year on leave from the university on an around-the-world trip with her husband, but she must continue to teach 3 more years rst. She estimates the trip will cost $40,000 and they will spend the money as a continuous ow of funds during their year of travel. She will put the lottery winnings in a bank account now to pay for trip. The bank pays 7% nominal interest, compounded continuously. She asks you to compute how much she should set aside in the account for the trip.

Answer 1

She should take out $32423 in the account.