I need help solving the following problem. The answer is: $35,229.87 You are pla

Question

I need help solving the following problem. The answer is: $35,229.87

You are planning your retirement in 10 years. You currently have $158,000 in a bond account. You plan to add $10,100 per year at the end of each of the next 10 years to your bond account. The bond account will earn a return of 7 percent. When you retire, you plan to withdraw an equal amount for each of the next 25 years at the end of each year and have nothing left. Additionally, when you retire you will transfer your money to an account that earns 6 percent. How much can you withdraw each year in your retirement?

Explanation / Answer

value in bond account at the end of 10 year = 158,000*CVF(7%,10)+10000*CVAF(7%,10)

=158,000*1.9672+10000*13.816

=

amount to be withdrawn

448,978=A*PVAF(6%,25)

A=448,978/12.783

=35,123   

The difference in answer due to approximation in discounting or compounding factor

  

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