Question

Henry Quincy wants to withdraw $30,000 each year for 10 years from a fund that earns 8% interest. How much must he invest today if the first withdrawal is at year-end? How much must he invest today if the first withdrawal takes place immediately?

Answer 1

Answer:

Amount invested today when first withdrawal end year  $201302

Amount invested today when first withdrawal immediately $217407

Explanation:

given data

Annuity = $30,000

Rate r = 8% = 0.08

time Period NPER = 10 years

solution

we get here first present value of ordinary annuity that is

Annuity(PV, NPER, r)

= $30,000 (PV,10,8%)

= 6.71008

Present value = $30,000 ×  6.71008

Present value = $201302.44

and

when he invest today if the first withdrawal takes place immediately is

Present value = $30,000 × 6.71008 × 1.08

Present value = $217406.64