Question 1200971: Carter expects to live for 30 years more after his retirement. He would like to withdraw $120,000 every year from his investment account (Account A) to pay for his living expenses. Carter’s investment account (Account A) pays 5% interest per year.
How much money (a lump-sum) will Carter required to deposit in Account A at the beginning of his retirement (at age 60) to pay for his living expenses if
(i) Account A start to pay $120,000 each year starting one year after his retirement? (5 marks)
(ii) Account A start to pay $120,000 each year startng on the day of his retirement? (5 marks)
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! payment is 120,000 per year for 30 years at 5% interest per year.
if he withdraws the payment at the end of each year, then he would need to have 1,844,694.123 at the beginning of his retirement period.
if he withdraws the payment at the beginning of each year, then he would need to have 1,936,928.829 at the beginning of his retirement period.
i used the ti-ba-ii calculator to solve this.
an online calculator that does the same can be found at https://arachnoid.com/finance/
these are the results from that calculator.
please note that the account does not start earning interest until the end of the first year in either case.
what is different is when the payment is withdrawn.
it is either withdrawn at the end of each year or at the beginning of each year.
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