Question

In: Economics

Adam withdraws uniformly from a savings account, at a rate of $ 3 000 for 6...

Adam withdraws uniformly from a savings account, at a rate of $ 3 000 for 6 years. Then due to unforeseen circumstances, he needs to increase his annual withdrawal by an additional $ 1 900. He continues to withdraw money at this increased rate for another 5 years until the account is exhausted. With an interest rate of 10%, what was the initial value of the savings account?

Solutions

Expert Solution

As per the question the uniform withdrawal of $3000 made by Adam for 6 year

Annual withdrawal (A) =$3000

Period (N) =6 years

Rate of interest (i) = 10%

Present worth (PW) = A(P/A,i,N) = 3000(P/A,10%,6) = 3000(4.3553) =$13065.9

PW of withdrawn from year 1 to 6 = $13065.9

Due to some problem he increased his annul withdrawal by $1900 for another five year

A1=3000 + 1900 =4900

G=1900

N= 5 years

Rate of interest (i) = 10%

A=A1 + G(A/G,10%,5) = 4900 + 1900(1.8101) = $8339.19

Present worth (PW) of the withdrawal = 8339.19(P/A,10%5)(P/F,10%,6)

Present worth (PW) of the withdrawal = 8339.19(3.7908)(0.5645) = $17845.087

PW of withdrawn from year 7 to 11 = $17845.087

Initial value or PW of the saving account = PW of withdrawn from year 1 to 6 + PW of withdrawn from year 7 to 11

Initial value of the saving account (PW) = $13065.9 + $17845.087 = $30910.98

Initial value of the saving account is $30910.98


Related Solutions

6.Suppose that you had savings deposited in an account at an interest rate of 5 percent...
6.Suppose that you had savings deposited in an account at an interest rate of 5 percent and your father told you that he earned 10 percent interest 20 years ago. Which of you was getting the better return? How would your answer change if you were told that the inflation rate in the United States was 12 percent 20 years ago and is 3 percent now? 7.Suppose you have $1,000, which you can put in two different types of accounts...
I’m investing 6% of my monthly salary into a savings account with a monthly interest rate...
I’m investing 6% of my monthly salary into a savings account with a monthly interest rate of 0.67%, the interest compounds monthly. How much will the savings account be worth after 10 years if I make an annual salary of $62,000 dollars and expect an annual salary increase of 1.5%?
If you invest $1,000 into a savings account at an annual interest rate of 3% (APR),...
If you invest $1,000 into a savings account at an annual interest rate of 3% (APR), compounded semi-annually, how much will you have in the savings account after 14 years?
You deposit into a savings account 3 years ago, and earned interest at an annual rate...
You deposit into a savings account 3 years ago, and earned interest at an annual rate of eight percent. The deposit accumulated to 30,000. How much was initially deposited assuming that the interest was compounded a. annually b. semiannually c. quarterly
If a savings account pays 6% p.a. interest rate, how much money do you need to...
If a savings account pays 6% p.a. interest rate, how much money do you need to deposit to accumulate $72,566 in 9 years? Note that the bank will compound interest monthly.
An amount of $10,000 is deposited into a savings account that pays interest at a rate...
An amount of $10,000 is deposited into a savings account that pays interest at a rate of 7%. If 10 equal annual withdrawals are made from the account starting one year after the money was deposited, how much can be withdrawn so that in the fifth year one would be able to withdraw an additional $1,000 and the account would be depleted after 10 years? Explain verbally in detail and sketch a timeline to illustrate.
Your grandmother has been putting $ 5 comma 000$5,000 into a savings account on every birthday...
Your grandmother has been putting $ 5 comma 000$5,000 into a savings account on every birthday since your first​ (that is, when you turned​ one). The account pays an interest rate of 10 %10%. How much money will be in the account immediately after your grandmother makes the deposit on your 18th birthday
For an investment, $25 000 is deposited into an account. The interest rate is 8% per...
For an investment, $25 000 is deposited into an account. The interest rate is 8% per annum, compounded annually, with annual payments starting in a year. How much is each payment? The textbook did not provide the value of n. This was part of a series of questions with the compounding periods changing to semi-annually, quarterly, and then monthly for the next three problems. The purpose of the problem set was to determine what happens to payments as the compounding...
(Future value)  Leslie​ Mosallam, who recently sold her​ Porsche, placed ​$10, 000 in a savings account...
(Future value)  Leslie​ Mosallam, who recently sold her​ Porsche, placed ​$10, 000 in a savings account paying annual compound interest of 5 percent. a.Calculate the amount of money that will accumulate if Leslie leaves the money in the bank for 2​, 6​, and 16 ​year(s). b.Suppose Leslie moves her money into an account that pays 7 percent or one that pays 9 percent. Rework part ​(a​) using 7 percent and 9 percent. c.What conclusions can you draw about the relationship...
Allen wants to open a savings account. He will transfer $40,000 from another account to the...
Allen wants to open a savings account. He will transfer $40,000 from another account to the savings account today. After that, he will deposit $1,000 every month to the savings account. If the annual interest rate is 3.2%, what will be the account balance in his savings account after 5 years? a. $112,653.52 b. $123,877.44 c. $123,877.23 d. $111,903.31 how would this be solved using finance functions in excel?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT