Question

Use the following to answer questions 20-21. Montgomery Burns, age 60, wants to retire at age 80 in order to steal candy from babies full time. Once Mr. Burns retires, he wants to withdraw $1 million at the beginning of each year for 10 years from a special offshore account that will pay 20 percent annually. In order to fund his retirement, Mr. Burns will make 20 equal deposits in this special account.

20. How much money will Mr. Burns need at age 80? A) $4,192,472.09 B) $5,030,966.50 C) $6,191,736.42 D) $31,150,418.53

21. How much will Mr. Burns need to deposit each year, at the end of the year, in order to fund his retirement? A) $22,457.11 B) $26,948.53 C) $33,166.23 D) $251,548.33

Answer 1

20. The withdrawals are at the beginning of each year.

Option B: $5,030,966.50

21. Now, with this as the future value, let's find the annual deposit to make

Yearly deposit = $26,948.53