Miracle Corporation wants to withdraw $60,000 from a savings account at the end of each year for ten years beginning one year from now.The savings earns 10% and is compounded annually.Which one of the following reflects the correct procedure to determine the required initial investment at the beginning of the first year?
A) $60,000 times the present value of a 10-year, 10% ordinary annuity.
B) $60,000 divided by the future value of a 10-year, 10% ordinary annuity.
C) $60,000 times the future value of a 10-year, 10% ordinary annuity.
D) $6,000 divided by the present value of a 10-year, 10% ordinary annuity.

Question

Quizplus · Accepted Answer

To determine the required initial investment to withdraw a fixed amount annually, you use the present value of an ordinary annuity formula. This accounts for the time value of money, allowing you to calculate the lump sum needed today to achieve those future withdrawals at the given interest rate.

Miracle Corporation Wants to Withdraw $60,000 from a Savings Account