Question

Julia Alvarez is investing $317,800 in a fund that earns 11% interest compounded annually. What equal amounts can Julia withdraw at the end of each of the next 15 years?

Answer 1

Given parameters are:

Investment amount = $317,800 referred as present value

Interest Rate = 11%, compounded annually

Time of deposit = 15 years

Withdrawal installment = 15 Years , at end of each year

So using the formula of Present value of annuity

PVA = A[1-(1+r)^-n]/r

Here, PVA = $317,800, r = 11%, n = 15, A = installment to be withdrawn each year

Putting the values in formula

$317,800 = A[1-(1+0.11)^-15]/0.11

$317,800 x 0.11 = A[1-(1+0.11)^-15]

$34,958 = A[1-0.2090043]

$34,958 = A x 0.7909957

A = $44,194.93

So Julia can withdraw $44,194.93 each year for 15 years by depositing $317,800 now.