Your uncle has $375,000 and wants to retire.He expects to live for another 25 years,and he also expects to earn 7.5% on his invested funds.How much could he withdraw at the beginning of each of the next 25 years and end up with zero in the account?
A)$28,243.21
B)$29,729.70
C)$31,294.42
D)$32,859.14
E)$34,502.10

Question

Quizplus · Accepted Answer

This is a typical annuity problem where we have to find the amount of annuity payments that will allow the invested funds to be depleted in a specific time period. In this case, we need to find the amount of annuity payments that will allow the invested funds to be depleted in 25 years.

To solve the problem, we can use the formula for the present value of an annuity:

P = A x (1 - (1 + r)-n)/r

Where P is the present value of the annuity, A is the amount of each annuity payment, r is the annual interest rate, and n is the number of payments.

We know that the present value of the annuity is equal to the initial amount invested, which is $375,000. We also know the annual interest rate, which is 7.5%. Finally, we know the number of payments, which is 25.

So we can plug in these values and solve for the amount of each annuity payment:

375,000 = A x (1 - (1 + 0.075)-25)/0.075

375,000 = A x 11.798

A = 31,694.42

Therefore, the amount of each annuity payment should be approximately $31,294.42 to allow the invested funds to be depleted in 25 years. The best choice is C.

Your Uncle Has $375,000 and Wants to Retire