Question

An​ amount, P, must be invested now to allow withdrawals of $1,000 per year for the...

An​ amount, P, must be invested now to allow withdrawals of $1,000 per year for the next 14 years and to permit $350 to be withdrawn starting at the end of year 5and continuing over the remainder of the 14​-year period as the $350 increases by 5​% per year thereafter. That​ is, the withdrawal at EOY six will be ​$367.50,​$385.88at EOY seven​, and so forth for the remaining years. The interest rate is 10​% per year. What is the P amount?

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Answer #1

The P amount is $9145

The explanation is as follows:

Year Annual Withdrawal Withdrawal Total Withdrawals PVF @ 10% Present value
1 1000 0 1000 0.909091 909.0909
2 1000 0 1000 0.826446 826.4463
3 1000 0 1000 0.751315 751.3148
4 1000 0 1000 0.683013 683.0135
5 1000 350 1350 0.620921 838.2438
6 1000 367.5 1367.5 0.564474 771.9181
7 1000 385.875 1385.875 0.513158 711.173
8 1000 405.1688 1405.169 0.466507 655.5216
9 1000 425.4272 1425.427 0.424098 604.5203
10 1000 446.6985 1446.699 0.385543 557.7649
11 1000 469.0335 1469.033 0.350494 514.8873
12 1000 492.4851 1492.485 0.318631 475.5518
13 1000 517.1094 1517.109 0.289664 439.4526
14 1000 542.9649 1542.965 0.263331 406.3109
Present value of withdrawals 9145
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