Question

Can you please explain me this question? Thanks!

Mr. and Mrs. LePine are giving a gift to their new born child, Hayden, as a retirement gift to Hayden by saving $5000 today in a mutual fund that averages 8.4% compounded quarterly. This account is to accumulate for 60 years when Hayden retires. Hayden wish’s to withdraw payments at the end of each month for twenty years. What amount will Hayden receive each month during this twenty-year period?

Answer 1

Information provided:

Presebt value= $5,000

Time= 60 years*4= 240 quarters

Quarterly interest rate= 8.4%/4= 2.10%

The question is solved by calculating the future value accumulated at the end of 60 years.

Enter the below in a financial calculator to compute the future value :

PV= -5,000

N= 240

I/Y= 2.10

Press the CPT key and FV to compute the future value of ordinary annuity.

The value obtained is 733,074.49.

Therefore, $733,074.49 will be accumulated at the of 60 years.

Next, the amount of monthly withdraw is calculated by entering the below in a financial calculator:

PV= -733,074.49

N= 20

I/Y=  2.10

Press the CPT key and N to compute the amount of monthly withdrawal.

The value obtained is 45,266.24.

Therefore, Haydeb will receive $45,266.24 every month during the 20 year period.

In case of any query, kindly comment on the solution.