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How much money must you invest today in order to withdraw 1,000 pesos per year for 10 years
if interest rate is 12% ?
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Use the general formula A = .
In this formula, A is the deposited value (the unkown value in this problem);
W is the withdrawal annual rate W (1000 pesos per year at the biginning of each year);
the annual compounding rate is r = 0.12; p = 1 + r = 1 + 0.12 = 1.12;
n is the number of payment periods n= 10 (10 years)
From the formula
A = = = 6328.25 pesoss. ANSWER
Notice that the TOTAL amount obtained from the account (1000 each year during 10 years) is 1000*10 = 10000 pesoss.
The difference P10000 - P6328.25 = $3671.75 is the INTEREST earned by the account during 10 years.
ANSWER. The amount of money to be invested today is P6328.25.
Solved.
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See my lessons in this site associated with annuity saving plans and retirement plans
- Ordinary Annuity saving plans and geometric progressions
- Annuity Due saving plans and geometric progressions
- Solved problems on Ordinary Annuity saving plans
- Withdrawing a certain amount of money periodically from a compounded saving account (*)
- Miscellaneous problems on retirement plans
and especially lesson marked (*) in the list as the most relevant to the given problem.