Question

With a present value of $110,000, what is the size of the withdrawals that can be made at the end of each quarter for the next 10 years if money is worth 6.2%, compounded quarterly? (Round your answer to the nearest cent.)

Answer 1

To find the size of the withdrawals that can be made at the end of each quarter for the next 10 years with a present value of $110,000 and an interest rate of 6.2% compounded quarterly, we can use the formula for the future value of an ordinary annuity.

Step-by-step explanation:

To find the size of the withdrawals that can be made at the end of each quarter for the next 10 years, we need to use the formula for the future value of an ordinary annuity. The formula is:

FV = PMT × [(1 + r)^n - 1] / r

Where:

• FV is the future value or the present value of $110,000
• PMT is the size of the withdrawals we need to calculate
• r is the interest rate per period, which is 6.2% divided by 4 since interest is compounded quarterly
• n is the number of periods, which is 10 years multiplied by 4 since there are 4 quarters in a year

Substituting the given values, we get:

FV = PMT × [(1 + 0.0155)^40 - 1] / 0.0155

Solving for PMT, we find that the size of the withdrawals that can be made at the end of each quarter for the next 10 years is approximately $3,715.57.