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K asked in Education & ReferenceHomework Help · 7 years ago

How do you explain safe yield with an example?

If you have $1000,000, your bank pays you 5% per annum which is $50,000. You spend $55,000 a year, how long will the capital last? Can anyone give me the answer as well as the formula / equation to come to the solution? I need this to teach safe yield (related to environment) to some clients.

Other examples of safe yield would be highly appreciated.

Thanks

Update:

Thanks Richard, I found the answer to be 50 yrs. Is there a formula that can give me an answer much quicker?

1 Answer

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  • ?
    Lv 7
    7 years ago

    If at the start of the year you have capital of C at the end of the first year your capital will be (C*1.05 -55,000). Enter this on an Excel spreadsheet and then repeat for each subsequent year.

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