Question

If Ms. P wants to withdraw $900 from an account earning 4% average annual interest rate at the start of each year for 7 years, how much must she have in the account today?

Answer 1

Answer:

Amount he must have in his account today is  $5,617.92

Step-by-step explanation:

Data provided in the question:

Regular withdraw amount = $900

Average annual interest rate, i = 4% = 0.04

Time, n = 7 years

Now,

Present Value = $C \times\left[ \frac{1-(1+i)^{-n}}{i} \right] \times(1 + i)$

here,

C = Regular withdraw amount

Thus,

Present Value = $C \times\left[ \frac{1-(1+i)^{-n}}{i} \right] \times(1 + i)$

Present Value = $900 \times\left[ \frac{1-(1+0.04)^{-7}}{ 0.04 } \right] \times(1 + 0.04)$

Present Value = $936 \times\left[ \frac{1 - 1.04^{-7}}{ 0.04} \right]$

Present Value = $936 \times\left[ \frac{1 - 0.759918}{ 0.04} \right]$

Present Value = 936 × 6.00205

or

Present Value = $5,617.92

Hence,

Amount he must have in his account today is  $5,617.92