32.2k views
5 votes
17. (Ignore income taxes in this problem.) If you wanted to withdraw $12,000 from a bank account at the end of each of the next 20 years, approximately how much would you have to invest in the account today assuming a 6% interest rate?

a. $20,924
b. $38,462
c. $74,880
d. $137,604

1 Answer

0 votes

Answer:

d. $137,604

Explanation:

The amortization formula is good for this. It tells you the principal P that must be invested to support payments of A each year for t years when the interest rate is r:

P = A(1 -(1 +r)^-t)/r

P = $12,000(1 -1.06^-20)/0.06 ≈ $137,639.05

The closest answer choice is $137,604.

User Shayan Masood
by
7.3k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories