Adam is planning to retire after eight years, so he decided to make an annual contribution of $11,000 to his saving account at the end of each year for the next six years.

Adam is planning to retire after eight years, so he decided to make an annual contribution of $11,000 to his saving account at the end of each year for the next six years. If the saving account earns 1.9% interest annually, how much can be withdrawn at the end of year eight?

hint: the saving account will continue to earn interest on the current money in it even after stopping to contribute to it.

Expert Solution

Given that,

Adam will deposit PMT = $11000 at the end of each year for next t = 6 year.

Interest rate earned = 1.9% annually

So, 1st calculating account value at the end of year 6 using FV formula of annuity,

V6 = PMT*((1+r)^t - 1)/r = 11000*((1.019)^6 - 1)/0.019 = $69215.56

So, account value after 8 year = V6*(1+r)^2 = 69215.56*1.019^2 = $71870.74

So, Adam can withdraw $71870.74 at the end of 8 years.

jeff jeffy answered 2 years ago

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