an individual has $1,100,000 in a retirement account. at the beginning of each m
ID: 2649843 • Letter: A
Question
an individual has $1,100,000 in a retirement account. at the beginning of each mint she plans to withdraw $10,000 for the next 30 years depleting the account, what annual rate of return is she expecting? if she is only able to earn 8% a year on her money, when will she run out? an individual has $1,100,000 in a retirement account. at the beginning of each mint she plans to withdraw $10,000 for the next 30 years depleting the account, what annual rate of return is she expecting? if she is only able to earn 8% a year on her money, when will she run out? an individual has $1,100,000 in a retirement account. at the beginning of each mint she plans to withdraw $10,000 for the next 30 years depleting the account, what annual rate of return is she expecting? if she is only able to earn 8% a year on her money, when will she run out?Explanation / Answer
This an annuity due. We can use PV of annuity due formula to calculate monthly rate of return.
PV = 1100,000
N = 30 x12 = 360
PMT =10,000
PV of annuity due = PMT + (PMT x PVIFA( N, R))
1100,000 = 10,000+ 10,000 x PVIFA ( 360, R)
Solving for R, we get:
R= 0.8687% Here R is monthly rate. Annual rate of return would be:
Annual rate of return = 0.8687% x12
= 10.42%
If she is able to earn 8%, then we need to calculate N using the same formula:
PV = 1100,000
R = 8%/12=0.67%
N = 30 x12 = 360
PMT =10,000
PV of annuity due = PMT + (PMT x PVIFA( N, R))
1100,000 = 10,000+ 10,000 x PVIFA ( N, 0.67%)
Solving for N we get:
N =198.92 months or 198.92/12 =16.58 years.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.