Question

If Ms. P wants to withdraw $900 from an account earning 4% average annual interest rate at the start of each year for 7 years, how much must she have in the account today?

Answer 1

Amount he must have in his account today is $5,617.92

Explanation:

Data provided in the question:

Regular withdraw amount = $900

Average annual interest rate, i = 4% = 0.04

Time, n = 7 years

Now,

Present Value =
`C *\left[ (1-(1+i)^(-n))/(i) \right] *(1 + i)`

here,

C = Regular withdraw amount

Thus,

Present Value =
`C *\left[ (1-(1+i)^(-n))/(i) \right] *(1 + i)`

Present Value =
`900 *\left[ (1-(1+0.04)^(-7))/( 0.04 ) \right] *(1 + 0.04)`

Present Value =
`936 *\left[ (1 - 1.04^(-7))/( 0.04) \right]`

Present Value =
`936 *\left[ (1 - 0.759918)/( 0.04) \right]`

Present Value = 936 × 6.00205

or

Present Value = $5,617.92

Hence,

Amount he must have in his account today is $5,617.92