Question

You want to be able to withdraw $45,000 each year for 25 years. Your account earns 4% interest. a) How much do you need in your account at the beginning? $ b) How much total money will you pull out of the account? $ c) How much of that money is interest?

Answer 1

Answer:

a) $702,994

b) $1,125,000

c) $422,006

Explanation:

n = 25 years

PMT = -$45,000 (The amount you want to withdraw each year)

i/r = 4%

FV = 0 (The amount at the end of 25 years. By that time, you will have already withdrawn the full amount you put in)

PV = ? (The amount you need to have at the beginning)

a) Using financial calculator, we get PV = $702,994

b) Total amount you pull out of your account is $45,000 x 25 = $1,125,000

c) Interest amount = $1,125,000 - $702,994 = $422,006