OPG has set up a fund to help pay the expenses for the monitoring of Pickering nuclear power plant once it is in safe storage. The balance in the fund today is $700 million, and it will earn interest at 7% compounded annually. Starting 10 years from now, $100 million will be withdrawn from the fund at the beginning of every year for 30 years. What is the annually compounded interest rate for the fund during the final 30 years?

Question

Quizplus · Accepted Answer

The correct answer is determined by understanding that the question is asking for the interest rate that allows the fund to exactly cover the withdrawals over the 30-year period. Given the initial balance, the annual interest rate for the first period, and the withdrawal schedule, the only rate that would allow the fund to sustain these withdrawals while eventually depleting to zero by the end of the 30 years is 6.61%. This rate is calculated based on the future value of the fund after 10 years of growth at 7% interest, followed by solving for the interest rate that allows for 30 annual withdrawals of $100 million each.

OPG Has Set Up a Fund to Help Pay the Expenses