Question

Michael received $8000 from his parents to attend college. If he invests the money at 12% per annum compounded monthly, how much can he draw monthly for the next 2 years starting 1 month later?

Answer #1

**Given,**

**Present value = $8000**

**Interest rate = 12% or 0.12**

**No. of years = 2 years**

**Solution :-**

**Monthly interest rate (r) = 0.12/12 = 0.01**

**No.of months (n) = 2 years x 12 = 24 months**

**Monthly withdrawals = (Present value x r)
[1 - (1 + r) ^{-n}]**

**= ($8000 x 0.01)
[1 - (1 + 0.01) ^{-24}]**

**= $80
[1 - (1.01) ^{-24}]**

**= $80
[1 -** **0.7875661274]**

**= $80
0.2124338726 = $376.59**

**So, he can withdraw $376.59 monthly.**

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