Homework SourseYou want to be able to withdraw 20000 each year for 25 years
You want to be able to withdraw $20,000 each year for 25 years. Your account earns 7% interest.
a) How much do you need in your account at the beginning
b) How much total money will you pull out of the account?
c) How much of that money is interest
Solution
*Hope the above explanation helps, please comment if further explanation is required. Your rating is appreciated*
| a | Present value of annuity= | P* [ [1- (1+r)-n ]/r ] | ||
| P= | Periodic payment | 20,000 | ||
| r= | Rate of interest per period | |||
| Annual interest | 7.00% | |||
| Number of interest payments per year | 1 | |||
| Interest rate per period | 0.07/1= | |||
| Interest rate per period | 7.000% | |||
| n= | number of periods: | |||
| Number of years | 25 | |||
| Periods per year | 1 | |||
| number of periods | 25 | |||
| Present value of annuity= | 20000* [ (1- (1+0.07)^-25)/0.07 ] | |||
| Present value of annuity= | 2,33,071.66 | |||
| b | Total payments value | 5,00,000.00 | ||
| c | Interest amount | 2,66,928.34 |
