Question

Mr. Ghani wants to deposit his savings of Rs. 50,000 in a bank which offers 8% interest compounded semi-annually to withdraw Rs. 2,500 at the end of each six months from the date of deposit. How many withdrawals will he or his heir (in case of his death) be able to make before the entire amount is exhausted

Answer 1

How many withdrawals will he or his heir (in case of his death) be able to make before the entire amount is exhausted is explained below in detail explanation.

Step-by-step explanation:

Let the no of withdrawals be n, then

Present value of n withdrawals = 50000

Interest rate per 6 months =8%/2 =4%

Withdraw amt/(Int rate)*(1-1/(1+interest)^n) = 50000

=> 2500/0.04*(1-1/1.04^n) = 50000

1/1.04^n = 0.2

1.04^n = 5

=> n = ln(5) / ln(1.04) = 41.03

Total 41 withdrawals of Rs.2500 can be made (with a smaller 42nd installment of less than Rs.2500)