Question

15. Your grandmother just died and left you $40,000 in a trust fund that pays 6.5% interest. You must spend the money on your college education, and you must withdraw the money in 4 equal installments, beginning immediately. How much could you withdraw today and at the beginning of each of the next 3 years and end up with zero in the account?

Answer 1

We have to draw the amount in 4 equal installments.

We can calculate the withdrawal amount by excel PMT function

Here

PV = $40000

Rate = 6.5%

N= 4

We have to find PMT using excel:

PMT = pmt(rate,nper, pv,fv,1) we take type as 1 as the withdrawals are at the beginning of the year

                = pmt(6.5%,4,-40000,0,1)

                = $10963.48

$10963.48 can be withdrawn for 4 years