Future and Present Value of an Annuity. A small business owner contributes $1000
ID: 2786911 • Letter: F
Question
Future and Present Value of an Annuity. A small business owner contributes $1000 at the end of each month into an account that earns an annual rate of 5% compounded monthly How much is in the account (its future value) after 5 years? How much would the business owner need to contribute each month if she wanted the value in 5 years to be $100,000? Suppose she currently has an account valued at $200,000 (its current value) which is also growing an annual rate of 5% compounded monthly. How much can she withdraw monthly (in equal amounts) from this current account if she wants to deplete the account at the end of 5 years. How much would she need to add to this second account if she wanted to withdraw $2000 each month for 5 years? a. b. c. d.Explanation / Answer
1
FV(5%/12,5*12,-1000,0,0)=68006.08
2
PMT(5%/12,5*12,0,100000,0)=1470.46
3
PMT(5%/12,5*12,200000,0,0)=3774.25
As she is adding 1000 monthly as well, so total withdrawal=1000+3774.25=4774.25
4
As she is adding 1000 monthly as well, so additional withdrawal=2000-1000=1000
Hence, PV(5%/12,5*12,1000,0,0)=52990.71
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