Your parents have an investment portfolio of $400,000,and they wish to take out cash flows of $50,000 per year as an ordinary annuity.How long will their portfolio last if the portfolio is invested at an annual rate of 4.50%? Use a calculator to determine your answer.
A)8.00 years
B)9.10 years
C)9.60 years
D)10.14 years

Question

Quizplus · Accepted Answer

Using the formula for the present value of an ordinary annuity, we can calculate the number of years the portfolio will last. The formula is: PV = PMT * [(1 - (1 + r)^-n) / r]. Plugging in the values: $400,000 = $50,000 * [(1 - (1 + 0.045)^-n) / 0.045], solving for n gives approximately 10.14 years.

Your Parents Have an Investment Portfolio of $400,000,and They Wish