Question

You want to be able to withdraw $40,000 each year for 25 years. Your account earns...

You want to be able to withdraw $40,000 each year for 25 years. Your account earns 8% 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?

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Homework Answers

Answer #1
a)
Present Value Of An Annuity
= C*[1-(1+i)^-n]/i]
Where,
C= Cash Flow per period
i = interest rate per period
n=number of period
= $40000[ 1-(1+0.08)^-25 /0.08]
= $40000[ 1-(1.08)^-25 /0.08]
= $40000[ (0.854) ] /0.08
= $4,26,991.05
b) Total money pull out = $40000*25
=$10,00,000
C ) Interest = $1000000-426991.05
=$5,73,008.95
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