Question

You have $100,000 in a saving account earning 7.4 percent per year. You now want to make 6 equal yearly withdrawals depleting the saving account. How much are your withdrawals?

Answer to the nearest cent, xxx.xx and enter without the dollar sign.

Answer 1

Solution

Assuming the withdrawls are made at end of each year

Present value of annuity=Initial amount in saving amount=Annuity payment*((1-(1/(1+i)^m))/i)

Thus

Initial amount in saving amount=Annuity payment*((1-(1/(1+i)^m))/i)

where

i-discount or intrest rate per period-7.4%

m-number of periods =6

Initial amount in saving amount =100000

Annuity payment=?

Putting values in formula

100000=Annuity payment*((1-(1/(1+.074)^6))/.074)

Solving we get Annuity payment=21,239.34

Thus annual withdrawls are 21239.34

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