Question

Eliza needs 30 dollars per month in order to keep her business alive after she has passed. If she earns 6% interest compounded monthly, how much should she deposit into the bank before she dies so that her business can stay alive?

Please show your working out

Answer 1

Interest paid per annum = 6% (compounded monthly)

Monthly interest rate = 6%/12 = 0.5%

Monthly income required = $30

Amount required to keep in bank to get $30 as interest every month = $30/0.5% = $6000

Thus, when $6000 is kept in the bank, the bank will generate 0.5% every month (6% per annum compounded monthly). So the interest generated will be $30, which will be consumed by the business in the same month, leaving the closing balance to be again $6000. This cycle will go on for infinite years.