Question
Asked Mar 7, 2019
36 views

You plan on withdrawing monthly payments for the next ten years and have deposited $100,000 in
an account. If the rate of return is 8% compounded monthly, determine the value of the monthly
withdrawals.
Possible answers: A) $1,613.28 B) $1,413.28 C) $1,213.28 D) $2,013.28 E) $1,813.28

check_circle

Expert Answer

Step 1

Let's assume that the value of the monthly withdrawals be an amount A.

Interest rate = 8% per annum compounded monthly.

Hence, interest rate per period = interest rate per month = R = 8% / 12 = 0.006666667

Period = N = nos. of months in 10 years = 12 x 10 = 120 months

Present value, V = $ 100,000

Step 2

Monthly withdrawl amount A shall be such that the sum of present value of all the future monthly withdrawal = Sum of PV of annuity A at interest rate of R and period N = A / R x [1 - (1 + R)-N] = Amount deposited in the account presently = V = $ 100,000

Hence, we have to solve for A from the equation, A / R x [1 - (1 + R)-N]  = 100,000

 

Step 3

Or, A / 0.006666667 x [1 - (1 + 0.006666667)-120] = 100,000

Or, 82.42148089A = 10...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Time Value

Related Finance Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: Can I have this explained? Am confused. Now you have $20,000 in your savings account in which you ea...

A: Calculation of Quarterly Interest Rate:

question_answer

Q: You work for a pharmaceutical company that has developed a new drug. The patent on the drug will las...

A: Calculation of Present Value of New Drug:The present value is calculated using the present value of ...

question_answer

Q: How I can resolve this problem.  The management of a firm wants to introduce a new product. the prod...

A: a. what is the break-even level of outpur for each scale of operation?In the first scale of operatio...

question_answer

Q: Consider Commodity Z, which has both exchange-traded futures and option contracts associated with it...

A: There is a specific relationship that exists between the call premium  and the put premium for an un...

question_answer

Q: A bank's loan rate for a machine is 9%. Determine the effective rate on the basis of the compounding...

A: The effective interest rate or the effective annual rate (EAR) is the actual rate paid or earned on ...

question_answer

Q: Wayne, Inc., wishes to expand its facilities. The company currently has 6 million shares outstanding...

A: Calculation of New Book Value per share:

question_answer

Q: how to solve a-c?

A: Calculating the value of each amount in the flexible budget. We have,

question_answer

Q: Countess Corp. is expected to pay an annual dividend of $3.97 on its common stock in one year. The c...

A: Calculating the cost of equity using the formula of dividend discounting model. We have,Current pric...

question_answer

Q: Bethesda Water has an issue of preferred stock outstanding with a coupon rate of 3.80 percent that s...

A: Calculation of the cost of preferred stock of the company. We have,Cost of preferred stock = Annual ...