Annie Laerz wants to invest $10,000 on January 1,2014,so that she may withdraw 10 annual payments of equal amounts beginning January 1,2029.If the fund earns 10% annual interest over its life,what will be the amount of each of the withdrawals?

Question

Quizplus · Accepted Answer

This problem requires the use of the present value of an annuity formula:

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

PV is the present value of the annuity (the initial investment)
PMT is the payment amount per period (what we want to solve for)
r is the interest rate per period (10%/year)
n is the number of periods (10 years from 2019 to 2028)

We know that PV = $10,000 and n = 10. Plugging in those values:

$10,000 = PMT x ((1 - (1 / (1 + 0.10)^10)) / 0.10)

Solving for PMT:

PMT = $16,181

Therefore, the answer is C, $16,181.

Annie Laerz Wants to Invest $10,000 on January 1,2014,so That