Question

A widow currently has a $96,000 investment that yields 6 percent annually. Can she withdraw $14,000 for the next ten years? Use Appendix D to answer the question. Round your answer to the nearest dollar. The maximum amount that can be withdrawn is $ so she -Select- withdraw $14,000 for the next ten years. Would your answer be different if the yield were 8 percent? Use Appendix D to answer the question. Round your answer to the nearest dollar. If the yield is 8 percent the maximum amount that can be withdrawn is $ so she -Select- withdraw $14,000 for the next ten years.

Answer 1

Part a:

P = Amount available = $96,000

n = 10 years

r = yeild rate = 6%

Maximum amount can be withdrawn = [r*P] / [1 - (1+r)^-n]

= [6% * $96,000] / [1 - (1+6%)^-10]

= $5,760 / 0.441605223

= $13,043.324

Therefore, maximum amount can be withdrawn is $13,043.32 and she cannot withdraw $14,000 for ten years

Part b:

P = Amount available = $96,000

n = 10 years

r = yeild rate = 8%

Maximum amount can be withdrawn = [r*P] / [1 - (1+r)^-n]

= [8% * $96,000] / [1 - (1+8%)^-10]

= $7,680 / 0.536806512

= $14,306.8309

Therefore, maximum amount can be withdrawn is $14,306.83 and she can withdraw $14,000 for ten years