In order to help you through college, your parents just deposited $25,000 into a bank account paying 8% interest. Starting tomorrow, you plan to withdraw equal amounts from the account at the beginning of each of the next four years. What is the MOST you can withdraw annually?

Question

Quizplus · Accepted Answer

This is a problem that involves calculating the annuity payment from a present value, where the present value is $25,000, the interest rate is 8% per year, and the term is 4 years. The formula for calculating the annuity payment is PV = PMT * [(1 - (1 + r)^-n) / r], where PV is the present value, PMT is the payment, r is the interest rate per period, and n is the number of periods. Solving for PMT with the given values gives the maximum annual withdrawal closest to option B, $6,988.91.

In Order to Help You Through College, Your Parents Just