Question

How much would howard steele need to invest today so that he may withdraw $12,000 each year for the next 20 years, assuming a rate of 8% compounded annually? (use the tables in the handbook.) $117,817.20 $454,144.00 $112,817.20 $549,144 none of these?

Answer 1

Answer:

$117,817.20.  

Explanation:

We need to get how much would Howard Steele need to invest today so that he may withdraw $12,000 each year for the next 20 years, assuming a rate of 8% compounded annually. The annual withdrawal target is $12000 multiply by the PVIFA (8%, 20) which is equal to 9, 81810 .

For the target period the amount that need to be invested today is $117,817.20.  

Please also refer to the  attachment

Answer 2

The present value of money, P, and the annuity can be related through the equation,
 
     P = A x ((1 - (1 + r)⁻ⁿ) / r)

where A is the periodic payment, r is the interest rate, and n is the number of years. Substituting the known values to the equation,

   P = (12,000) x ((1 - (1 + 0.08)⁻²⁰) / 0.08)

    P = $117,817.77

ANSWER: $117,817.77