Question: I need help with this problem, the answer is given but I don't know how to solve it. Mr. Burns keeps his personal savings in
I need help with this problem, the answer is given but I don't know how to solve it.
Mr. Burns keeps his personal savings in a brokerage account. These savings are invested by professional money market managers that consistently earn him a 3% annual return. Unfortunately, whenever Mr. Burns wants to withdraw some cash to spend in his everyday life, the brokerage account charges him a $5 withdrawal flat fee (irrespective of how much he withdraws). Mr. Burns estimates that he spends about $420 a week in his everyday life.
a) (4 points) To the nearest dollar, when Mr. Burns withdraws money from his savings, how much should he withdraw? Please include units. $2,698
b) (2 points) If Mr. Burns withdraws the amount you suggest in part a), how often will he withdraw money, i.e., how long is it between his withdrawals? (For example, he withdraws once a week, once every 2.4 weeks, etc.) Please include units. 6.42 weeks
c) (4 points) How much does Mr. Burns spend on withdrawal fees annually? Please include units. $40.47
d) (2 points) Due to new financial regulations at his brokerage firm, Mr. Burns can only withdraw a maximum of $2,000 each time he makes a withdrawal. Now how much would you recommend he withdraws? $2,000
e) (2 points) Comparing the amounts you suggest in part d) with the amount you suggest in part a), in which setting does Mr. Burns spend more on withdrawal fees? Justify your answer intuitively.
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