Al Vincent has decided to retire to Arizona in 12 years. What amount should Al i
ID: 2777930 • Letter: A
Question
Al Vincent has decided to retire to Arizona in 12 years. What amount should Al invest today so that he will be able to withdraw $32,000 at the end of each year for 17 years after he retires? Assume he can invest the money at 7% interest compounded annually.
Al Vincent has decided to retire to Arizona in 12 years. What amount should Al invest today so that he will be able to withdraw $32,000 at the end of each year for 17 years after he retires? Assume he can invest the money at 7% interest compounded annually.
Explanation / Answer
Calculation of money to be invested today (Present value):
Calculation of present value of annual withdrawals at the end of year 12:
Annual Withdrawals required
$ 32,000.00
Interest rate
7%
Year
17
PVAF (7%, 17 years)
9.76322
Present value of annual withdrawals at the end of year 12 = 32000*9.76322 =
$312,423.14
PVF (7%, 12th year)
0.44401
Present value of investment required today = 312423.14 *0.044401
$ 138,719.61
Hence money that should be invested today is $ 138719.61
Calculation of money to be invested today (Present value):
Calculation of present value of annual withdrawals at the end of year 12:
Annual Withdrawals required
$ 32,000.00
Interest rate
7%
Year
17
PVAF (7%, 17 years)
9.76322
Present value of annual withdrawals at the end of year 12 = 32000*9.76322 =
$312,423.14
PVF (7%, 12th year)
0.44401
Present value of investment required today = 312423.14 *0.044401
$ 138,719.61
Hence money that should be invested today is $ 138719.61
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