Question

How much money must initially be deposited in a savings account paying 5% per year, compounded annually, to provide for ten annual withdrawals that start at $6000 and decrease by $500 each year?(Ans.$30504.19)

Answer 1

The money that must be initially deposited to make the annual withdrawals is calculated as follows

PW = $ 6000 ( P/A, 5% , 10 years ) - $ 500 ( P/G , 5% , 10 years)

Where ( P/A, 5% , 10 years ) = Uniform series present worth factor

( P/G , 5% , 10 years) = Gradient present worth factor

Present worth = $ 6000 x 7.721735 - $ 500 x 31.65204768

Present worth = $ 30,504.39

The money that must be initially be deposited in a savings account = $ 30,504.39