Question

A personal account earmarked as a retirement supplement contains $242,100. Suppose $200,000 is used to establish an annuity that earns 7%, compounded quarterly, and pays $4500 at the end of each quarter. How long will it be until the account balance is $0? (Round your answer UP to the nearest quarter.)?

Answer 1

THUMBS UP PLEASE.

Computing no.of quarters till which the retirement balance lasts.

Using Financial calculator:

I/Y =(7/4) = 1.75

PMT = 4500

PV = 200000

CPT Press N = 86.70 quaters or about 21.67 years.

Normal method:

Formula: The present value of an ordinary annuity (PV)

PV = C× [1-(1+r)^-n]/r

PV = Present value (The cumulative amount available at Present)

C= Periodic cash flow.

r =effective interest rate for the period.

n = number of periods.

200,000= 4500× [1-(1+0.0175)^-N]/0.0175

N =86.70 quarters or about 21.67 years.

It will take 86.70 quarters or about 21.67 years for the balance to become $0.