Question

Hermann hospital has $20,000 in an account earning 8 percent annually, what constant amount could they withdraw each year and have nothing remaining at the end of 5 years?

Answer 1

Present Value = $ 20,000

Future Value = 0

Yearly withdrawal = Present Value of Fund / PVIFA ( n, i)

where n = 5

and i = 8%

From the PVIFA table, the value of PVIFA ( 5, 8%) = 3.99271003707808

Hence, Yearly Withdrawal =$ 20,000 /  3.99271003707808

= $ 5009.129091

Hence the correct answer is $ 5009.13

Note:

The PVIFA (5, 8%) can alternatively be calculated as under:

Year	Working	Amount
1	1/(1.08)	0.925925926
2	1/(1.08)^2	0.85733882
3	1/(1.08)^3	0.793832241
4	1/(1.08)^4	0.735029853
5	1/(1.08)^5	0.680583197
	PVIFA = Sum of Amount	3.99271003707808