Question

In: Finance

45.You plan on saving $12,300 at the end of each of the next 20 years and...

45.You plan on saving $12,300 at the end of each of the next 20 years and investing your savings at an annual interest rate of 8%. At the end of year 20 you plan on retiring. You plan on leaving your savings in investments yielding an annual rate of 8% and withdrawing from savings a constant amount for the next 30 years commencing at the end of your first year of retirement. How large a withdrawal can you afford to make?

Select one:a. $68,000b. $27,500c. $39,300d. $50,000e. None of the above

Expert Solution

Answer is : d.$50,000

Solution:

Step 1: Find the future value of $12,300 deposited for next 20 years.

We can use the future value of annuity formula:

Where,
FVA = Future Value of Annuity
A = Annuity
i = rate of interest
n = number of years

Substituting the values, we get:

Step 2: Find amount of withdrawal using present value of annuity formula, taking $562,873 as present value of annuity.

Where,
PVA = Present value of annuity
A = Annuity or withdrawal amount
i = Interest rate in decimal form
n = Number of years

We can round it off to $50,000 per year.

Therefore, the answer is d. $50,000

jeff jeffy answered 1 year ago

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