Question

Janie deposits $10,000 in the bank today. Starting 3 years from now, she makes equal withdrawals of $1,000 for 5 years and then withdraws the remaining amount 10 years from now. How much will she be able to withdraw 10 years from now, assuming the bank pays 6 percent compounded annually?

Answer 1

Present value of withdrawals=cash withdrawals*Present value of discounting factor(rate%,time period)

10000=1000/1.06^3+1000/1.06^4+1000/1.06^5+1000/1.06^6+1000/1.06^7+x/1.06^10[where x=amount withdrawn 10 years from now]

10000=1000[1/1.06^3+1/1.06^4+........+1/1.06^7]+x/1.06^10

10000=1000*3.748988773+x*0.558394776

Hence x=(10000-3748.988773)/0.558394776

which is equal to

=$11194.61(Approx)(Please note that intermediate calculations have not been rounded off.