Question
1:
Derek will make a deposit at the end of Years 1-4 and withdraw
$12,424.00 at the end of Year 5. There would be no deposit in Year
5.
Derek will again make a deposit at the end of Years 6-10 and
withdraw $12,469 at the end of Year 11. There would be no deposit
in Year 11.
We shall calculate this in Microsoft Excel:
- First, we construct the Excel sheet with columns as shown
below
- Cell B3 and F2 are the beginning account balance
- Interest is calculated at 6.98% on the account balance at the
start of the year
- Balance at the end of the year is = Balance at the start of the
year + Interest earned + Deposit - Withdrawal
- The deposit column is left blank except for Years 5 and 11 -
these are zero (0) as there would be no deposit in these years
- The Excel sheet should now look like this:
- Now, we simply input an approximate value for the deposit in
Cell C3 and copy the same value in all the cells of Column C except
C7 and C13 (Years 5 and 11 - No deposits, remember!)
- If the Balance at the end of Year 11 (Cell F13) is negative, we
increase the input value in Column C
- If the Balance at the end of Year 11 (Cell F13) is positive, we
decrease the input value in Column C
- Through trial and error, and less than 10 iterations, we can
arrive at an exact input value which makes the Balance at the end
of Year 11 equal to zero.
- We can see that this value is $1,715.46
Answer to
Question 1: $1,715.46
Question
2:
Once again, we calculate this in Excel.
- The schedule is extended for 30 years
- 5 deposits and 5 withdrawals are input in the appropriate cells
as seen below
- Interest is calculated at 6% on the Balance at the start of the
year
- Balance at the end of year 30 is calculated to be
$239,670.86