It is your 5th birthday today. You have a trust fund with $50,000 that is earnin

Question

It is your 5th birthday today. You have a trust fund with $50,000 that is earning 8% per year. You expect to withdraw $20,000 per year for 4 years starting on your 21st birthday for graduate school. How much money will be left in the trust fund after your last withdrawal (rounded to the nearest $10)

A. $135,780
B. $91,30 (yes this is what it says I didn't make a typo)
C. $125,660
D. You will not have enough money to pay for graduate school.

I am not even getting close to any of these answers. Can someone help and please show all work - especially helpful if you give steps for a financial calculator.

Thanks

Explanation / Answer

So first we must figure out what our money will grow to by the Beginning of his 21st. It starts at the beginning of year 5 so we have 16 years of growth at 8%. Given our calculation of compounding interest: FV = P*(1+i)^(t) P= 50000 i = .08 t = 16 That gives us a value of $171,297. This value is at the Beg of his 21st year (since we started with the beg of year 5.) That means we must reduce this by $20,000 and that amount then grows at 8% for his 21st year. So 171,297 - 20000 = $151,297. This grows by 8% Cash at beg of year 22, 151,297 x (1.08) = 163,400. When then reduce this by 20,000 and have that number grow by 8%. Cash at beg of year 23, is $154,872.97 and again we reduce by 20,000 and have that new number grow by 8%. Finally cash at the beg of year 24 is 145,662.81 which we then do our final withdrawl at and we get 125,662.81 and we round to the nearest 10 which gives us 125,660 or answer C) Hope this helps!

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