Your uncle has $1,375,000 and wants to retire.He expects to live for another 25 years and to earn 7.5% on his invested funds.How much could he withdraw at the end of each of the next 25 years and end up with zero in the account?
A) $92,514.13
B) $127,052.74
C) $97,448.22
D) $123,352.17
E) $124,585.70

Question

Quizplus · Accepted Answer

We can use the present value of an annuity formula to find how much he can withdraw each year:

PV = (C/r) * (1 - (1+r)^(-n))

where PV = present value (in this case, $1,375,000), C = annual withdrawal amount, r = interest rate (as a decimal), and n = number of years.

Plugging in the given values, we get:

1,375,000 = (C/0.075) * (1 - (1+0.075)^(-25))

Solving for C, we get:

C = $123,352.17

Therefore, he can withdraw $123,352.17 at the end of each of the next 25 years and end up with zero in the account.

Your Uncle Has $1,375,000 and Wants to Retire