Question

You were left $100,000 in a trust fund set up by your grandfather. The fund pays 6.5% interest. You must spend the money on your college education, and you must withdraw the money in 4 equal installments, beginning immediately. How much could you withdraw today and at the beginning of each of the next 3 years and end up with zero in the account

Answer 1

Answer:

The answer is 27,408.71

Explanation:

Solution

Recall that:

You were left with a trust fund of =$100,00

Interest rate = 6.5%

Money with drawled = 4 installments

Now,

The step to take is to find you could withdraw currently at the start of each of the next 3 years with a zero account to end up with.

Now,

100, 00 = X (1 - (1.065)^-4/.065/1.065

We now solve for X

Thus

X =7,408.71

By applying or using a financial calculator

We arrange it to an annuity due setting - [2nd] [BGN] then [2nd] [Set] this will set it to mode "BGN"

So,

N = 4

I/Y = 6.5

PV = -100,000

FV = 0

CPT PMT

The payments are known to to be 27,408.71

Note : Kindly find an attached copy of the Financial calculator below

Answer 2

Answer:

$27,408.71

Explanation:

The formula that would be used to compute the annual withdrawal until the end of the year the future value left is zero, is given as under:

Present Value = X * [ 1 - (1 + r)^-n]  / [r / (1+ r)]

Here

N = 4

Future Value is 0

r is 6.5%

Present Value of the annuity is $100,000

CPT PMT is X which we have to calculate here.

By putting the values we have:

$100,000 = X * [ 1 - (1 + 6.5%)^-4]  / (6.5% / 1.065)

X = $27,408.71