Answer:
The correct answer is $1265.60.
Explanation:
According to the scenario, the given data are as follows:
Present Value (PV) = $25,000
Rate of interest = 5%
Rate of interest ( semi annual) (r) = 2.5%
Time period (semi annual) = 2
So, First we calculate the effective annual interest rate,
Effective annual interest rate = ( 1 + r)^n = (1.025)^2 -1
=5.0625%
So, Annual Withdrawal = PV × Effective annual interest rate
by putting the value, we get
Annual withdrawal = $25,000 × 5.0625%
= $1265.60