Question

John wishes to set up an account for his grandfather so that he can have some extra money each month. John wants his grandfather to be able to withdraw $120 per month for the next 3 years. How much must John invest today at 5% per year compounded monthly so that his grandfather can withdraw $120 per month for the next 3 years?

Answer 1

Answer:

John must invest $3719.4

Explanation:

It is given that John grandfather withdraws $120 per month for 3 year

So total month = 12 ×3 =36 months

Total amount withdrawn S = 36×120 = 4320

m = 12 times per year

Rate of interest i = 5 % = 0.05

We know that $S=P(1+\frac{i}{m})^{mt}$

$4320=P(1+\frac{0.05}{12})^{36}$

$4320=P\times 1.1614$

P = $3719.41

So john must invest $3719.4