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A person has $100,000 in a saving account that earns interest of 5% per year, compounded...

A person has $100,000 in a saving account that earns interest of 5% per year, compounded annually. If the person withdraws $5,000 at the end of each year, after how many years (a whole number) will the saving be exhausted? Will it ever get exhausted?

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Answer #1

Information provided:

Present value= $100,000

Yield to maturity= 5%

Yearly withdrawal= $5,000

The number of years for the savings to be exhausted is calculated with the help of a financial calculator.

The following has to be entered in the financial calculator:

PV= -100,000

YTM= 5

PMT= -5,000

Now, press CPT key and then press the N to calculate the number of years for the savings to be exhausted.

The value obtained is 14.2067 years 14 years.

Therefore, the savings will get exhausted and it will in 14 years.

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