Question

Al Darby wants to withdraw $20900 (including principal) from an investment fund at the end of each year for five years. How should he compute his required initial investment at the beginning of the first year if the fund earns 11% compounded annually

Answer 1

Answer:

$20,900 times the present value of a 5-year, 11% ordinary annuity of 1’

Explanation:

For computing the required initial investment we considered the following information

Withdrawn amount = $20,900

Time period = 5 years

Rate of interest = 11%

in mathematically,

= Withdrawn amount  × Present  value of a 5-year, 11% ordinary annuity of 1’

By this formula we can get the required initial investment