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In: Finance

You put aside $100,000 in year t = 0, and let it grow at 6.3% interest...

You put aside $100,000 in year t = 0, and let it grow at 6.3% interest for 3 years. Exactly one year after that you start to withdraw your money for 5 years in equal amounts until it is exhausted. How much can you withdraw per year? Answer to the nearest cent, xxx.xx and enter without a dollar sign.

Expert Solution

Amount put aside or Invested = $100,000

Calculating the Future value of amount invested in 3 years:-

Future Value = Invested amount*(1+r)^n

where, r = Interest rate = 6.3%

n = no of years = 3

Future Value = $100,000*(1+0.063)^3

= $120,115.70

Now, 1 year after that 5 same periodic annual withdrawal is made from the account such that after 5 payments balnce would be nil.

Calculating the periodic annual withdrawal using Present value of Ordinary annuity formula:-

Where, C= Periodic Payments

r = Periodic Interest rate = 6.3%

n= no of periods = 5

Present Value = $120,115.70

C = $28,748.14

So, periodic withdrawal each year is $28,748.14

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jeff jeffy answered 1 year ago

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