Question

David has a bank account which pays interest at the rate of 1.5% per year, compounded annually. Determine what amount David

must have in the bank, given that he would like to draw an annual salary of $32,635.15 from his account at the end of each year

for 30 years. Round to the nearest cent.

Answer 1

a. $783,760.48

on edgen

Answer 2

Answer: the amount that David must have in the bank is $783243.6

Explanation:

We would apply the formula for determining present annuity. It is expressed as

PV = R[1 - (1 + r)^- n]r

Where

PV represents the present value of the investment.

R represents the regular payments made(could be weekly, monthly)

r = represents interest rate/number of interval payments.

n represents the total number of payments made.

From the information given,

r = 1.5/100 = 0.015

n = 30 years

R = $32,635.15

Therefore,

PV = 32635.15[1 - (1 + 0.015)^- 30]/0.015

PV = 32635.15[1 - (1.015)^- 30]/0.015

PV = 32635.15[1 - 0.64]/0.015

PV = 32635.15[0.36]/0.015

PV = 32635.15 × 24

PV = $783243.6