Question

You want to be able to withdraw $25,000 each year for 15 years. Your account earns 9% 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

Answer-

Given

Payment = PMT = $ 25000
Number of years = N = 15
Interest rate = I/Y = 9 %
Future value = FV= $ 0
Present value = PV = ?

a)

Beginning value = PV = $ 201517.21

Therefore the amount needed in the account in the beginning = $ 201517.21

b)

The total money that will be pulled out of account
= Payment (PMT) x Number of years (N)
= $ 25000 x 15
= $ 375000
Total money pulled out of account = $ 375000

c)

The amount that is Interest amount out of the pulled money
= Total money that will be pulled out of account - Beginning amount in the account
= $ 375000 - $ 201517.21
= $ 173482.79

Interest amount = $ 173482.79