Question

You want to be able to withdraw $40,000 each year for 30 years. Your account earns 7% interest.

a) How much do you need in your account at the beginning?

$

b) How much total money will you pull out of the account?

$

c) How much of that money is interest?

$

Answer 1

a ) Calculation of the amount in your account :-

Here 40,000 each year for 30 years.

So, we find the present value.

Present value = Payment receive * PVAF(7%,30 years)

present value = 40,000 * [ 1 - 1/(1.07)³⁰] / 0.07

= 40,000 [ 1 - 0.131367] / 0.07

= 40,000 * 12.40904

Present value = $ 496,361.64734

Amount need in your account at beginning = $ 496,361.65

b ) Total amount you received :-

Total amount received = 40,000 * 30 =$ 1,200,000

c ) Total interest received :-

Total interest = Total amount received - Amount in your account at beginning = $ 1,200,000 - 496,361.64734 = $ 703638.35266