Question

In: Economics

On January 1, $5000 is deposited into a high-interest savings account that pays 8% interest compounded annually.

On January 1, $5000 is deposited into a high-interest savings account that pays 8% interest compounded annually. If all the money is withdrawn in 5 equal end-of-year sums beginning December 31 of the first year, how much will each withdrawal be?

Solutions

Expert Solution

Annual withdrawal = 5000*(A/P,8%,5)

= 5000*0.08*((1 + 0.08)^5)/((1 + 0.08)^5-1)

= 5000*0.08*((1.08)^5)/((1.08)^5-1)

= 5000*0.250456

= 1252.28


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