Answer:
$187,584.20
Explanation:
Firstly, we need to calculate the total future value (FV) of the bond account and stock account after 10 year from now (when you come to retirement age):
FV_bond at retirement = 169,000 x (1 + 7.25%)^10 + 7,100 x (1 + 7.25%)^9 + 7,100 x (1 + 7.25%)^8 + … 7,100 x (1 + 7.25%)^0 = 426,230.93
FV_stock at retirement = 609,000 x (1 + 10.75%)^10 = 1,690,653.63
Total FV of your investment portfolio = 2,116,884.57
Because you plan to use up all the funds in your account after 21 equal amount withdrawals after retirement, total present value <em>(at the time you retire not now)</em> of these withdrawals <em>(discounted at 6.5%)</em> have to be equal to the value of your invesment 10 years from now, or:
2,116,884.57 = C/(1+6.5%) + C/(1+6.5%)^2 + … + C/(1+6.5%)^21, with C is the amount you plan to withdraw each year.
Solve the equation we get C = 187,584.20
<em>Note: The equation can be solved easily using Excel or BAII Plus.</em><em> </em>
