Question

1. Your health insurance requires a copay of $35 each time you see your doctor. You have already met your $2000 deductible for the year, but you are far below your out-of-pocket maximum payment of $2500 for the year. Your doctor charges patients without insurance $100 per visit. How much must you pay for your visit to the doctor in this situation?

2. You are 65 years old and about to retire. You have $100,000 saved in a retirement account and would like to withdraw it in equal annual amounts so that nothing is left after 11 years. How much can you withdraw each year if the account earns 6% interest each year?

Answer 1

1. Answer is $35
Since I have already met the $2000 deductible, my health insurance will start contributing towards my healthcare costs. However, since I am below the maximum out-of-pocket expense of $2500, I will have to make the co-payment of $35 to cover the charges of the Doctor's visit. The health insurer will bear the balance cost of $65 to cover the total doctor charges of $100 ($35+$65)

2. Answer is $12,679
You can withdraw $12,679 at the end of each year so that the balance will be zero in the investment account at the end of 11 years.
The methodology to calculate the answer is as below:
Use the function PMT() in Excel
Answer = PMT (rate, nper, PV, FV, type)

PMT 69d 1 Rate Nper 11 Pv 100000 Fuo Type o = 0.06 = 11 - 100000 = 0 1 1 = -12679.29381 Calculates the payment for a loan based on constant payments and a constant interest rate.

Where,
rate = rate of return of the investment account
nper = number of years
PV = initial saving/investment
FV = Final (future) value in the investment account (at the end of 11 years)
Type = whether the withdrawal is made at the start (1) or at the end (0) of the year