Betty Boop has saved enough money to go back to grad school. She is planning to put the money in a money market account where it will earn 2.5 percent. If she anticipates slowly drawing the money out over the course of her time in grad school at a constant rate of $29,000 per year, but is charged a commission of $7.95 every time she sells shares, how much should she take out of the mutual fund at a time?

Question

Quizplus · Accepted Answer

To minimize the impact of the $7.95 commission, Betty should withdraw in amounts that are as large as possible while still allowing her to meet her $29,000 annual withdrawal requirement. The correct calculation involves dividing $29,000 by the number of withdrawals that minimize the commission impact, which results in option C.

Betty Boop Has Saved Enough Money to Go Back to Grad