Question

Your father's employer was just acquired, and he was given a severance payment of $375,000, which he invested at a 7.5% annual rate. He now plans to retire, and he wants to withdraw $35,000 at the end of each year, starting at the end of this year. How many years will it take to exhaust his funds, i.e., run the account down to zero?
a. 22.50 b. 23.63 c. 24.81 d. 26.05 e. 27.35

Answer 1

Answer: (a) 22.50

Explanation:

Payment severance (PV) = 375,000,

Payment = -35,000,

Interest rate = 7.5%

FV = 0.

Evaluating these numbers using a calculator to solve for number of periods will give us the result as 22.5 years.