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You are considering investing in a bank account that pays a yearly interest rate of 6.35%....

You are considering investing in a bank account that pays a yearly interest rate of 6.35%. If you wish to withdraw $8,550.89 from this account every period, forever, how much must you place into the account today?
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Answer #1
Question- You are considering investing in a bank account that pays a yearly interest rate of 6.35%. If you wish to withdraw $8,550.89 from this account every period, forever, how much must you place into the account today?

Solution-

Annual Withdrawal from account per year forever = $8550.89

Interest rate provided by bank = 6.35%

Calculating the Present Value of Amount to be depsoited today:-

Present Value = Annual Withdrawal/Interest rate

Present Value = $8550.89/6.35%

Present Value = $134,659.69

So, amount you place into the account today is $134,659.69

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