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

Question

Quizplus · Accepted Answer

To calculate this, we need to use the Present Value of an Annuity formula, which is:

Payment = (PV x r) / (1 - (1 + r)^(-n))

Where PV is the present value of the funds ($375,000), r is the interest rate (7.5%), and n is the number of payments (25).

Plug in the numbers:

Payment = (375,000 x 0.075) / (1 - (1 + 0.075)^(-25))
Payment = $31,294.42 (rounded to the nearest cent)

Therefore, the uncle could withdraw $31,294.42 at the beginning of each of the next 25 years and end up with zero in the account. Choice C is the closest answer.

Your Uncle Has $375,000 and Wants to Retire