Question

Q9. You are ready to retire. A glance at your 401(k) statement indicates that you have
$2,750,000. If the funds remain in an account earning 4.5% annually, how much could
you withdraw at the end of each year for the next 30 years? Round to two decimal places.

Q10. If you wish to accumulate $280,000 in the child's college fund after 18 years, and can
invest at a 7.5% annual rate, how much must you invest at the end of each year if the first
deposit is made at the end of the first year? Round to two decimal places.

Answer 1

Calculate the amount with drawn from the account as follows:

Therefore, the amount that can be with drawn is $168,826.74.

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Calculate the amount deposited as follows:

Therefore, amount to be deposited is $7,848.11.

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Alternative method: Using present value of annuity payment formula:

Q.9

Present value = Annual payment*(1-(1+rate)^-Number of years)/Rate

   $2,750,000 = Annual payment*(1-(1+4.5%)^-30)/4.5%

Annual payment = $168,826.74.

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Q.10.

   Present value = Annual payment*(1-(1+rate)^-Number of years))/Rate

$280,000 = Annual payment*(1-(1+7.5%)^(-18))/7.5%

Annual payment = $7,848.11