Ali Shah sets aside $2,000 each year for five years. He then withdraws the funds on an equal annual basis for the next four years. If Ali wishes to determine the amount of the annuity to be withdrawn in years 6 through 9, he should use the following two tables in this order:
A)present value of an annuity of $1; future value of an annuity of $1
B)future value of an annuity of $1; present value of an annuity of $1
C)future value of an annuity of $1; present value of $1
D)future value of an annuity of $1; future value of $1

Question

Quizplus · Accepted Answer

Since Ali is withdrawing equal annual payments for the next four years, he should use the table for the future value of an annuity of $1 to determine the future value of his investments at the end of year 5 (when he begins withdrawing the annual payments). Then, he should use the table for the present value of an annuity of $1 to determine the equal annual payments he can withdraw for the next four years (years 6 through 9) based on the amount he has at the end of year 5.

Ali Shah Sets Aside $2,000 Each Year for Five Years