Question 1190394: You have $500,000 saved for retirement. Your account earns 10% interest. How large can your regular withdrawals be, if you want to be able to take withdrawals twice per month for 25 years? (Round down to the cent.)
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! if you want to withdraw twice per month for 25 years, you will be making 24 * 25 = 600 bi-monthly withdrawals.
what has not been provided is how many times a year the interest rate is compounded.
if your money is in the bank, they would normally compound the interest monthly.
i could make a guess, but it would be better for me if you could provide me with the following information.
1.
how many times a year is the interest rate being compounded?
it could be 1; it could be 12; it could even be 24, although i haven't seen this in any of the other problems i worked on. it could even be something else, like daily, although i haven't seen that very often.
check with your instructor to see what he says.
2.
will the money be withdrawn at the end of each semi-monthly period or will it be withdrawn at the beginning of each semi-monthly period?
i'm assuming that we are talking about compound interest.
it could also be simple interest.
compound interest re-invests the interest earned so that it becomes part of the principal going forward.
simple interest is only taken off the original principal and does not get re-invested.
with compound interest, the interest is based on the remaining balance of the loan.
if you terminate the loan early, you are not paying any interest on the remaining balance at the time that you terminate the loan.
with simple interest, the interest is calculated up front off the initial balance.
whether you terminate the loan early or not, you are still responsible for the interest on the whole loan.
at least that's my understanding.
you shouldn't need to worry about this.
i just need the information i requested.
that is:
how many times a year is the interest rate being compounded?
is the money being withdrawn at the beginning of each semi-monthly period or at the end?
theo
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