Present Value of an Annuity John Joshua wants to make 5 equal annual withdrawals of $20,000 from a fund that will earn interest at 12% compounded annually.
Required:
How much would John have to invest on January 1, 2019, if he makes the first withdrawal on:
1.
Determine the amount required to be invested on January 1, 2019, if the first withdrawal is made on January 1, 2020.
Annuity: An annuity is referred as a sequence of payment of fixed amount of cash flows that occurs over the equal intervals of time.
Cash flow occurs during the first day of each time period is known as an annuity due, whereas cash flow occurs during the last day of each time period is known as an ordinary annuity.
Determine the amount required to be invested on January 1, 2019, if the first withdrawal is made on January 1, 2020.
Here, the cash flow (withdrawals) occurs during the last day of each time period, hence it is an ordinary annuity.
2.
Determine the amount required to be invested on January 1, 2019, if the first withdrawal is made on January 1, 2019.
3.
Determine the amount required to be invested on January 1, 2019, if the first withdrawal is made on January 1, 2023.
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