Chapter 02, Problem 139 You decide to open a retirement account at your local ba

Question

Chapter 02, Problem 139 You decide to open a retirement account at your local bank that pays 7%/year/month (790 per year compounded monthly). For the next 20 years, you will deposit $400 per month into the account, with all deposits and withdrawals occurring at month's end. On the day of the last deposit, you will retire. Your expenses during the first year of retirement will be covered by your company's retirement plan. As such, your first withdrawal from your retirement account will occur on the day exactly 12 months after the last deposit. Click here to access the TVM Factor Table Calculator What monthly withdrawal can you make if you want the account to last 15 years?$ Round entry to the nearest dollar. Tolerance is t4. What monthly withdrawal can you make if you want the account to last forever (with infinite withdrawals)?$ Round entry to the nearest dollar. Tolerance is t4.

Explanation / Answer

monthly rate = 7/12 = .58333%

number of months of deposit = 20*12 =240

Future value of deposit =FVA .58333%,240*Amount

= 520.92*400

= 208368

1)NUmber of withdrawl =15*12 = 180

Amount of withdrawl = Future valueof deposit /PVA .58333%,180

    = 208368/111.26

= 1872.80           [rounded to 1873]

2) Amount of withdrawl = Future value of deposit *r

           = 208368*.0058333

             = 1215.47   [round to 1215]

***find future value annuity and present value annuity factor using financial calculator.

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