The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
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Mackie's individual retirement account (IRA)currently has a balance of $100,000 and is earning 6%.Beginning one year from today,what equal annual amounts can be withdrawn from the IRA for ten years so that the balance after the tenth withdrawal is zero?
A)$10,000
B)$12,950
C)$13,587
D)$14,237

Question

The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.  
-
Mackie's individual retirement account (IRA)currently has a balance of $100,000 and is earning 6%.Beginning one year from today,what equal annual amounts can be withdrawn from the IRA for ten years so that the balance after the tenth withdrawal is zero?
A)$10,000
B)$12,950
C)$13,587
D)$14,237

Quizplus · Accepted Answer

This problem requires the use of the annuity due formula, as the payments are made at the beginning of each year. Using Table 9-4, the factor for annuity due for 10 years at 6% is 7.36009.

We can set up the following equation:

$100,000 = PMT × (1 + 0.06)⁹ + PMT × (1 + 0.06)⁸ + ... + PMT × (1 + 0.06) + PMT

where PMT is the annual withdrawal amount.

Simplifying, we get:

$100,000 = PMT × 7.36009

PMT = $13,587 (rounded to the nearest dollar)

Therefore, choice C is the correct answer.

The Solution to This Problem Requires Time Value of Money