Question

Compute the requested value(s) for each scenario. Show all component numbers that factor into determination of the final answer(s) a. Starting eleven years from now you would like to withdraw $24,000 a year for a period of 5 years (years 11 through 15) plus the additional amount of $40,000 in year 15. Assuming an interest rate of 8.00%, how much must you deposit today to make these future withdrawals a reality?

Answer 1

To make future withdrawals of $24,000 a year for 5 years plus an additional $40,000 in year 15, you would need to deposit approximately $72,665.40 today.

Step-by-step explanation:

To calculate how much must be deposited today to make these future withdrawals possible, we need to use the concept of present value. The formula for present value is:

Present Value = Future Value / (1 + Interest rate)Number of years

In this scenario, the future value is the sum of the annual withdrawals for 5 years, plus the additional amount in year 15. So, the future value is $24,000 x 5 + $40,000 = $160,000. The interest rate is 8% and the number of years is 11. Plugging these values into the formula, we get:

Present Value = $160,000 / (1 + 0.08)11 = $72,665.40

Therefore, the amount that needs to be deposited today to make these future withdrawals possible is approximately $72,665.40.