Question

eBook

Problem 7-06

A widow currently has a $90,000 investment that yields 6 percent annually. Can she withdraw $10,000 for the next fifteen years? Use Appendix D to answer the question. Round your answer to the nearest dollar.
The maximum amount that can be withdrawn is $___ so she (can or can not) withdraw $10,000 for the next fifteen years.

Would your answer be different if the yield were 9 percent? Use Appendix D to answer the question. Round your answer to the nearest dollar.
If the yield is 9 percent the maximum amount that can be withdrawn is $____ so ( she can or can not ) withdraw $10,000 for the next fifteen years.

Answer 1

Question 1:

PV = Investment = $90,000

r = yeild rate = 6%

n = 15 years

Maximum amount she can withdraw = [r * PV] / [1 - (1+r)^-n]

= [6% * $90,000] / [1 - (1+6%)^-15]

= $5,400 / 0.582734939

= $9,266.64876

The maximum amount that can be withdrawn is $9,266.65  so she can not withdraw $10,000 for the next fifteen years.

Question 2:

PV = Investment = $90,000

r = yeild rate = 9%

n = 15 years

Maximum amount she can withdraw = [r * PV] / [1 - (1+r)^-n]

= [9% * $90,000] / [1 - (1+9%)^-15]

= $8,100 / 0.725461959

= $11,165.2994

The maximum amount that can be withdrawn is $11,165.30 so she can withdraw $10,000 for the next fifteen years.