Question

10. You want to be able to withdraw $30,000 each year for 25 years. Your account earns 8% interest. a. How much do you need in your account at the beginning? b. How much total money will you pull out of the account? c. How much of that money is interest?

Answer 1

Kindly check explanation

Explanation:

Given the following :

Rate (r) = 8% =. 0.08

Period (t) = 25 years

Yearly withdrawal = cashflow = P= $30,000

Using the present value formula (PV) :

Present Value (PV) = P[(1 - (1 + r)^-n) / r]

PV = 30000((1 - (1 + 0.08)^-25) / 0.08)

PV = $320,243.29

B.) Total amount pulled out :

Yearly withdrawal * number of years

$25000 * 25 = 625,000

C.)

Interest :

$625000 - $320,243.29 = $304,756.71