Question

Suppose you earned a $160,000 bonus this year and invested it at 8.25% per year. How much could you withdraw at the end of each of the next 20 years?

Select the correct answer.

a. $16,577.10

b. $16,594.80

c. $16,588.90

d. $16,583.00

e. $16,600.70

Answer 1

Q: Ans:

Given principla amount of investment = $160,000

Per annum interest rate = 8.25%

time period = 20 years.

To find how much you can withdraw at the end of each of next 20 years.

we will find solution in this way.

Amount of withdraw each year up to 20 year = Present value of investment divided by cummulative discount factor.

cummulative discount factor = 1- ( 1+ r ) -t / r

here r= interest rate =8.25% , t= period which is 20 years

So puting these value in formula we will get = 1-(1+0.0825)- 20 / 0.0825 = 1-(1.0825)-20 / 0.0825 = 9.638148

So amount of withdraw = $160000 / 9.638148 = $ 16,600.6996 = $16,600.70

Option e is correct.