Question

Your uncle has $300,000 invested at 7.5% and wants to retire. He wants to withdraw 35,000 at the beginning of each year, beginning immediately. He also wants to have 25,000 left to give you when he ceases to withdraw funds from the account. for how many years can he make the 35,000 withdrawals and still have 25,000 left in the end?   

Answer 1

Solution:

The problem represents a time value of money problem where the present value is -300000 since being an outflow. Future value is 25000 i.e. to be received in the end and the payments are of 35000 at the beginning of each year. Annuity at the beginning of the year is Annuity at end * (1+r) = 35000*(1+7.5%) = 35000*1.075 = 37625.

The rate is 7.5% and we have to calculate the number of periods.

We will be using our BA II plus TVM row in order to solve the given problem:

We enter the values :

PV = -300000 , FV = 25000, I/Y = 7.5% , PMT = 37625 , N = ??

After entering the values we press CPT + N

and we get the number of years as : 11.89 years