Question

(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

Answer 1

The money should be invested in bank = $137,639.05

Step-by-step explanation:

Given annually withdrawal money (annuity ) = $12000

Number of years (n ) = 20 years

Interest rate = 6 percent.

Since a person withdraw money annually for next 20 years with 6 percent interest rate. Now we have to calculate the amount that have been invested in the account today. So below is the calculation for invested money.

`\text{Present value of annuity} = (Annuity [1-(1 + r)^(-n)])/(rate) \\= (12000 [1-(1 + 0.06)^(-20)])/(0.06) \\=12000 * 11.46992122 \\=137,639.05`