QUESTION 1 1 points Save Suppose you plan to retire at age 70, and you want to b

Question

QUESTION 1 1 points Save Suppose you plan to retire at age 70, and you want to be able to withdraw an amount of $87,000 per year on each birthday from age 70 to age 100 (a total of 31 withdrawals). If the account which contains your savings earns 6.7% per year simple interest how much money needs to be in the account by the time you reach your 70th birthday? (Answer to the nearest dollar.) Hint This can be solved as a 30-year ordinary annuity plus one withdrawal at age 70, or as a 31-year annuity due

Explanation / Answer

Required balance in savings a/c P+P×[1-(1÷(1+r))^(n-1)]÷r Here, 1 Interest rate per annum 6.70% 2 Number of years                                                                                     31 3 Number of compoundings per per annum                                                                                       1 4 = 1÷3 Interest rate per period ( r) 6.70% 5 = 2×3 Number of periods (n) 31 Payment per period (P) $                                                                        87,000 Required balance in savings a/c $                                          1,199,936 87000+87000*(1-(1/(1+6.7%))^(31-1))/6.7%

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