Question

You just got $60,000 from an inheritance and want to withdraw amounts of $2,595.74 each quarter....

You just got $60,000 from an inheritance and want to withdraw amounts of $2,595.74 each quarter. If the rate is 12%, how long can you do this? Round to the closest value. YOU MUST SHOW YOUR WORK You MUST include: 1. Identify the type of problem. 2. Write out the formula identifying the rate and term in the factor. 3. Solve with a complete formula.

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Answer #1

Ans 1) It is an example of annuity problem, where PV of annuity is given as well as the annuity is given. We need to find the time till we can get this annuities.

Ans2) Rate is 12%

so for per quater rate will be 12%/4 = 3%

Present value of annutiy = Annuties * (1 - (1+rate)^(-n))/rate

Ans 3) using above formula and putting values in the above equation we can find n which is the term.

60000 = 2595.74 * (1-1.03^(-n))/.03

after solving this equation we will get value of n = 40

thus for next 10 years I can withdraw $2595.74 each quarter.

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