Question

10,000 is deposited into an account earning an effective annual interest rate of 6%. Beginning at the end of the third year, annual withdrawals of 1,000 are made from the account until the account balance at the end of a year is less than 1,000. At the point, the remaining balance is withdrawn and the account is closed. How many full withdrawals of 1,000 are made?
a. 16
b. 17
c. 18
d. 19
e. 20

Answer 1

Answer:

The correct answer is option D,19.

Explanation:

In calculating the above,two steps are involved-calculation of future value of $10000 invested at 6% for three years and calculation of number of years it would take to draw down the future value to less than $1000 by withdrawing $1000 every year beginning from year 3.

Using financial calculator,FV=FV(rate,nper,,-pv)

Please note negative in pv and the two commas

Rate=6%,nper=3 years and pv=$10000

Besides, the number of years was calculated using nper formula,which is given as:nper(rate,-pmt,pv,,1)

Find all calculations in the attached while also paying attention to the formulas.

Download xlsx