Question

Tami would like to withdraw $10,364.10 at the end of each year, for 10 years, from an account paying 2.3% compounded annually. Determine the amount needed in the account for Tami to do this. Round to the nearest cent.

Answer 1

The amount that Tami needs to invest is approximately $8256.27

Explanation:

Since the amount invested will be compounded annually, we need to apply the appropriate formula to find the correct answer. This formula is shown below:

M = C*(1 + r)^t

Where M is the final amount, C is the initial amount, r is the interest rate and t is the time elapsed. Applying the data from the question, we have:

10364.1 = C*(1 + 0.023)^10

10364.1 = C*(1.023)^10

C*(1.023)^10 = 10364.1

C*1.2553 =10364.1

C = 10364.1/1.2553 = 8256.2734

The amount that Tami needs to invest is approximately $8256.27