Stan has made a $125.30 monthly deposit into an account that pays 1.5% interest, compounded monthly, for 35 years. He would now
like to draw a monthly salary from the account. Determine the amount that Stan can withdraw each month for 20 years, if he plans on not having anything in the account at the end of the 20 year period and no future deposits are made to the account.
The future value of a monthly deposit A=125.30 at annual interest i=0.015 per annum for n=35 years compounded monthly is given by FV=A((1+i/12)^(12*n)-1)/(i/12) =125.30(1+0.015/12)^(12*35)/(0.015/12) =$69156.05
The annuity formula is given by Payment = r(PV)/(1-(1+r)^(-n)) where r=interest rate per period = 0.015/12 PV= $69156.05 n=20*12=240 so Payment = (0.015/12)<span>69156.05/(1-(1+0.015/12)^(-240)) = $333.71 per month.</span>
