Question

How much would you have to invest today to be able to withdraw $6,779 each month, for 10 months, starting 7 months from now, if your investments earn 6.03% APR (compounded monthly)?

Answer 1

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS

Formula: The present value of an ordinary annuity (PV)

PV = C× [1-(1+r)^-n]/r

PV = Present value (The cumulative amount available at 6months)

C= Periodic cash flow. 6779

r =effective interest rate for the period. 6.03%/12 = 0.5025

n = number of periods. 10

PV = 6779× [1-(1+0.5025%)^-10]/0.5025%

PV at 6 months = 65,953.50

Formula:

Future value= present value at 0monthd(1+r)^n

r= interest rate for the period.

n = number of periods.

65,953.50 = PV*(1.005025)^6

PV = $64,000

Answer: investment needed today = $64,000