Janice has $200,000 in an investment and wishes to use this money to take time off and get her Master's degree. She plans to withdraw $2,000 per month for the first 3 years for her monthly expenses. Afterwards, she intends to increase her withdrawals to $3,000 per month. Determine how many monthly payments can be extracted after the third year if interest throughout is 5.2% compounded monthly.

Question

Quizplus · Accepted Answer

The future value of the withdrawals after 3 years is $2,000 x 36 + $3,000 x (n-36), where n is the total number of months. The present value of this future value is $200,000. Using the formula for the present value of an annuity, we can solve for n:PV = FV / (1 + r/12)^(-nt)$200,000 = ($2,000 x 36 + $3,000 x (n-36)) / (1 + 0.052/12)^(-12n)$200,000 = $72,000 + $36,000n / (1.004333333)^(-12n)$128,000 = $36,000n / (1.004333333)^(-12n)$3.555555556 = n / (1.004333333)^(-12n)n = 60.00000000Therefore, the correct answer is A) 59 months.

Janice Has $200,000 in an Investment and Wishes to Use