Question

Suppose you have $200,000 to deposit right now and can earn 9% annual rate.

a) If you withdraw $5000 each month, how many months could you keep withdrawing?

b) How much could you withdraw every month for 5 years?

Answer 1

a.Information provided:

Present value (PV)= $200,000

Monthly withdrawal (PMT)= $5,000

Market rate= yield to maturity (I/Y)= 9%/ 12 = 0.75% per month

Enter the below in a financial calculator to compute the number of months till I can keep withdrawing:

PV= -200,000

PMT= 5,000

I/Y= 0.75

Press the CPT key and N to compute the number of months till I can keep withdrawing.

The value obtained is 47.73.

Therefore, I can keep withdrawing till 47.73 months.

b.Information provided:

Present value (PV)= $200,000

Time (N)= 5 years*12= 60 months

Market rate= yield to maturity (I/Y)= 9%/ 12 = 0.75% per month

Enter the below in a financial calculator to compute the amount of monthly withdrawal:

PV= -200,000

N= 60

I/Y= 0.75

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 4,151.67.

Thereby, I can withdraw $4,151.67 every month for 5 years.