Question

Suppose you inherited $275,000 and invested it at 8.25% per year. How much could you withdraw at the end of each of the next 20 years? $28,532 $29,959 $31,457 $33,030

Answer 1

Answer:

withdraw amount  = 28532.45

so correct option is  a. $28,532

Explanation:

given data

present amount  = $275,000 bonus

interest rate = 8.25% per year  = 0.0825

time period = 20 year

solution

first we get here Cumulative discount factor that is

Cumulative discount factor = $\frac{(1-(1+r)^{-t}}{r}$   .........................1

here r is rate and t is time period

put here value and we will get

Cumulative discount factor = $\frac{(1-(1+0.0825)^{-20}}{0.0825}$    

solve it we get

Cumulative discount factor =  9.638148

and now we get  so here withdraw amount at the end of each of the next 20 years that is

withdraw amount = Present amount ÷ cumulative discount factor   ............2

put here value

withdraw amount = $\frac{275000}{9.638148}$    

solve it we get

withdraw amount  = 28532.45

so correct option is  a. $28,532