Find the amount necessary to fund the given withdrawals Mont

Find the amount necessary to fund the given withdrawals. Monthly withdrawals of $950 for 5 years, interest rate is 4.5% compounded monthly The amount necessary to fund the given withdrawals is Round to the nearest cent as needed.)

Solution

We can use the present value of annuity formula to find out the amount necessary to fund the given withdrawals. The formula is as under, Present value of annuity = P * {[1 - (1+r)^-n]/r} Present value of annuity = amount necessary to fund the given withdrawals = ? P = Periodic withdrawal i.e.monthly withdrawal = $950 r = rate of interest per month = 4.5%/12 = 0.00375 n = no.of months = 5 years * 12 = 60 months Present value of annuity = 950 * {[1 - (1+0.00375)^-60]/0.00375} Present value of annuity = 950 * {0.201114768/0.00375} Present value of annuity = 950 * 53.63938 Present value of annuity = 50957.41 The amount necessary to fund the given withdrawals = $50,957.41