Suppose you inherited $100,000 and invested it at 7% per year. What is the most you could withdraw at the end of each of the next 10 years and have a zero balance at Year 10? How would your answer change if you made withdrawals at the beginning of each year? SHOW WORK AND USE FINANCIAL CALCULATOR
Suppose you inherited $100,000 and invested it at 7% per year. What is the most you could withdraw at the end of each of the next 10 years and have a zero balance at Year 10? How would your answer change if you made withdrawals at the beginning of each year? SHOW WORK AND USE FINANCIAL CALCULATOR
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
- Suppose you inherited $100,000 and invested it at 7% per year. What is the most you could withdraw at the end of each of the next 10 years and have a zero balance at Year 10?
- How would your answer change if you made withdrawals at the beginning of each year?
SHOW WORK AND USE FINANCIAL CALCULATOR
Expert Solution
Step 1
1) Present value of annuity is the sum of all future cashflows made at the end of every period discounted at certain discount rate
PVA = PMT * [1-(1+ r )-n ]/r
Where, PMT = cashflow
r = periodic interest rate = 7%
N = time period = 10 years
If balance withdrawal made at end of next 10 years.
Solved using Financial Calculator
To Clear previous calculations, press 2nd CLR
100,000 = PV
10 = N
7 = I/Y
CPT PMT = -14,237.75
Withdrawal made at end of every year is $14,237.75
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