SOLUTION: You want to be able to withdraw $40,000 each year for 25 years. Your account earns 7% interest. a) How much do you need in your account at the beginning? (Round up to the whole

Question 1190656: You want to be able to withdraw $40,000 each year for 25 years. Your account earns 7% interest.
a) How much do you need in your account at the beginning? (Round up to the whole dollar.)
b) How much total money will you pull out of the account?
c) How much of that money is interest?

Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
if you withdraw the money at the beginning of each year for 25 years, then the present value of those withdrawals will be equal to 498,773.36.
round that to the nearest dollar, and you get 498,773.
you will have withdrawn a total of 25 * 40,000 = 1,000,000.
the interest from that investment will be 1,000,000 minus 498,773 = 501,227.

if you withdraw the money at the end of each year for 25 years, then the present value of those withdrawals will be equal to 466,143.33.
round that to the nearest dollar, and you get 466,143.
you will have withdrawn a total of 25 * 40,000 = 1,000,000.
the interest from that investment will be 1,000,00 minus 466,143 = 533,857.

it's not clear from the problem whether you are withdrawing the money at the end of each year or at the beginning of each year, so i gave you both analyses.
if one doesn't work, try the other.
let me know how you do.
theo

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