Question

4- Beginning 1 month from today David B. will deposit each month $200 into an account paying 15 6% nominal interest. He will make a total of 240 deposits (20 years). After the last deposit the money in the account will begin to earn 4% interest compounded annually. After another 10 years David will begin to withdraw annual amounts for a total of 10 years. How much can be withdrawn each year if the account is to be depleted (zero balance) after another 10 years?

Answer 1

The solution is as follows:

atoy We can solve this question using Financial CMPD Set: Begin / End N: Number of Periods I'%. Interest pee period. PV: Present Value PMT: Amount of each annuity FV: Future Value Now, Steb I: CMPD Set: End n=240 Nominal Interest Rate can be divided T -6712- 0.5 directly with the numberg compounding] PV. O PMT= - 200 EVE SOLVE 92408.17903

Step 11: Set: Not Applicable n=10 1°/-4 PV = -92408.17903 РЧта о FV - SOLVE 136786.6789 Step III : Jet : Begin Assuming that amounts have been withdrown at the beginning of each year! n=10 1.4. -4 PV = 136786.6789 PMT= SOLVE - 16215.92194 FV=0 Hence, $26215.92 (rounded off to two nearest decimal places) can be withdraw each yeare it the account is to be defleted (zero balonce) - after another 10 years

Please note that, in Step I, we have calculated Future Value iie. accumulated amount of 240 deposits i.e. debasit of $200 per month into an account paying 6% nominal interest In Step II, we have coluuloted future Value of Lumpsum amount lie..$92408.17903 which has been debesited into account fer 10 years paying 4% interest compounded annually. In Step II, we have calelated amount to be withdrawn each year for 10 years out of accumulated amount, so that there will be zero balonce in account offere another 10 years