You just turned 21 today and you want to save some money to take a vacation in E

Question

You just turned 21 today and you want to save some money to take a vacation in Europe when you turn 25 and spend 2 years there. Starting next month, you will deposit $500 every month until you turn 25. Your last payment will be on your 25th birthday. You want to make two withdrawals, one on your 26th, and another on your 27th birthday. Assume the interest rate is 12 percent compounded daily throughout these years. What are your annual withdrawals for those two years while you are in Europe? Assume 365 days in a year.

A)$18,313.60

B)$16,405.76

C)$18,112.65

D)$16,172.01

E)None of the above

Explanation / Answer

N = 4*12, PV = 0, rate = (1 + 12%/365)365/12 - 1 = 1.0049 %, PMT = 500

use FV funciton in Excel

amount accumulated at age 25 = 30,648.6782

PV = 30,648.6782, FV = 0, N = 2, rate = (1 + 12%/365)^365 - 1 = 12.7475%

use PMT fucnyin in Excel

annual amount = 18,313.60

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