You will deposit $2,000 today. It will grow for six years at 10% interest compounded semi-annually. You will then withdraw the funds annually over the next four years at the end of each year. The annual interest rate is 8%. Your annual withdrawal will be approximately ______.

Question

Quizplus · Accepted Answer

First, calculate the future value of the deposit after 6 years with semi-annual compounding: FV = $2,000 * (1 + 0.10/2)^(6*2) = $3,596.57. Then, use this amount as the present value for a 4-year annuity with an 8% annual interest rate to find the annual withdrawal: PMT = $3,596.57 / [(1 - (1 + 0.08)^-4) / 0.08] = $1,085.

You Will Deposit $2,000 Today