Question

Marcy received an inheritance of $20,000, and invested it at 6% interest. She is going to use it for college, withdrawing! money for tuition and expenses each quarter. How much can she take out each quarter if she has 3 years of school left:

Answer 1

P = [d x {1 – 1/(1 + r/k)Nk}]/(r/k)

P = beginning balance in account = $20,000

d = quarterly withdrawal amount

r = annual interest rate = 6% or 0.06

k = number of compounding periods = 4

N = number of periods = 3

$20,000 = [d x {1 – 1/(1 + 0.06/4)(3 x 4) }/ (0.06/4)

$20,000 = [d x {1 – 1/(1.015)12}] / (0.015)

d = ($20,000 x 0.015)/0.1636125781

d = $1833.6
Quarterly withdrawal amount = $1,833.6 or $1,834 (approx).