What lump sum of money must be deposited into a bank account at the present time so that $600 per month can be withdrawn for give years, with the first withdrawal scheduled for six years from today? The interest rate is 1/4% per month. (Hint: There are 60 monthly withdrawals and they begin at the end of the month 72 the lump of money should be $?
What lump sum of money must be deposited into a bank account at the present time so that $600 per month can be withdrawn for give years, with the first withdrawal scheduled for six years from today? The interest rate is 1/4% per month. (Hint: There are 60 monthly withdrawals and they begin at the end of the month 72
the lump of money should be $?
Monthly withdrawal (C) = $600
Monthly interest rate (r) = 0.0025 (i.e. 1 / 400)
Number of monthly withdrawals (n) = 60
Monthly period till 71 months (t) = 71
Value at 71 months (P71) = ?
Present value (P0) = ?
Present value or initial value is the discounted value of all the future cash flows to the present using appropriate discount rate.
First we will calculate value at 71 months using present value of ordinary annuity formula ant then discount it to present
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