Question

A wealthy parent is trying to fund a trust fund for his oldest son. The parent...

A wealthy parent is trying to fund a trust fund for his oldest son. The parent has set aside $407,000.00 today in an account that pays 8.00% annual interest. His oldest son will begin receiving the trust in 15.00 years, and the trust is set up to pay 19.00 identical annual payments. What will be the yearly withdrawal for the son from the trust?

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Answer #1

The amount is computed as shown below:

Future value is computed as follows:

= $ 407,000 x 1.0815

= $ 1,291,072.829

Now, the above computed amount will become the present value as shown:

Present value = Annual withdrawal x [ (1 – 1 / (1 + r)n) / r ]

$ 1,291,072.829 = Annual withdrawal x [ (1 - 1 / (1 + 0.08)19 / 0.08 ]

$ 1,291,072.829 = Annual withdrawal x 9.6035992

Annual withdrawal = $ 1,291,072.829 / 9.6035992

Annual withdrawal = $ 134,436.35 Approximately

Feel free to ask in case of any query relating to this question      

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