Question

Carl's bank offers a retirement plan that promises a return of 9.5%. If he wants to be able to withdraw $27,000 at he start of 2018 as well as the start of the next 14 years, how much should Carl keep in his retirement account today?

a. $378,000.00

b. $231,440.00

c. $211,360.00

Answer 1

The correct answer to the question is b. $ 231,440

Carl withdraws $ 27,000 in Year 1 and is left with a balance of $204,440 which is deposited in the bank.

Bank provides a rate of 9.5% on the said balance translating to $ 19,421 which adds up his total balance to $ 223,862.

At the starting of 2nd Year, Carl withdraws $27,000 so on and so forth.

At the end of 13th year, he is left with a balance of $27,000 which he withdraws at the beginning of the 14th year.