Question

How much must you invest in equal amount each year for 10 years starting now (i.e., years 0 through 9) if you want to be able to withdraw $5,000 at end of eleventh year and increase annual withdrawal by $1000 each year until year 25 yrs ? interest rate is 6% compounded annually

Answer #1

Solution :-

Present Value of Growing Annuity of Withdrawal at year 10 =

= 5,000 * P/A ( 6% , 15 ) + $1,000 * P/G ( 6% , 15 )

= ( 5,000 * 9.712 ) + ( $1,000 * 57.554 )

= $48,651 + $57,555

= $106,116

Now the Value of annual Withdrawal Assume be X

X * ( 1 + r ) * F/A (6% , 10 ) = $106,116

X * ( 1 + 0.06 ) * 13.181 = $106,116

X = $7,954.97

Therefore the Value of equal amount withdrawal each year = $7,954.97

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