Question

You deposit $4,000 per year at the end of each of the next 25 years into an account that pays 8% compounded annually. How much could you withdraw at the end of each year of the next 20 years? The first withdrawal is made at the end of the first year in the 20-year period. So you save for 25 years and withdraw for 20 years.

***Please use financial calculator and write down the steps to get the answer***

Answer 1

First we calculate the future value (at the end of 25 years) of the deposits

Using a financial calculator

PV = 0

PMT = 4000

N = 25

I/Y = 8

cpt FV, we get FV = 292423.76

Hence, after 25 years $292423.76 is accumulated

Now, we calculate how much could you withdraw at the end of each year of the next 20 years

Using a financial calculator

PV = -292423.76

FV = 0

N = 20

I/Y = 8

cpt PMT, we get PMT= 29784.01

Hence, you could withdraw $1264328.52 at the end of each year of the next 20 years