Shah sets aside $2,000 each year for five years. After five years, he then withdraws the funds on an equal annual basis for the next four years. If Shah wishes to determine the amount of the annuity to be withdrawn in years 6 through 9, he should use the following two tables in this order: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

Shah needs to first determine the future value of the annuity he has saved over the five years, and then use the present value of an annuity formula to calculate the equal annual withdrawals he can make over the next four years. Therefore, he should use the future value of an annuity of $1 table first, followed by the present value of an annuity of $1 table.

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