Question

How much must you invest in equal amount each year for 10 years starting now (i.e.,...

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

Homework Answers

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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