Question

. It is your 6th birthday today. You have a trust fund with $50,000 that is earning 8% per year.

You expect to withdraw $30,000 per year for 7 years starting on your 22nd birthday for graduate school. How much money will be left in the trust fund after your last withdrawal (rounded to the nearest $10)?         

Answer 1

The value of the trust fund as of 22nd birthday:

The future value formua is given by:

FV22 = PV * (1 + r)^n

PV = 50,000

r = 8%

n = 22 - 6 = 16

FV22 = 50,000 * (1 + 0.08)^16

FV22 = 50,000 * 3.4259426433

FV22 = $171,297.132165

Now, with this as the present value at age 22, we will find the amount left in the account with annual withdrawals of $30,000 for 7 years

PV = 171,297.132165

PMT = -30,000

Negative sign indicates cash withdrawals

N = 7

I/Y = 8

CPT FV

FV = 25,889.08

FV = $25,890

$25,890 will be left in the trust fund