Homework Answers
a)
Annuity due
Since withdrawals take place at the BEGINNING of the period, it is a case of annuity due
b)
Rate = 6.4% / 2 = 3.2%
Number of periods = 5 * 2 = 10
Present value = (1 + r) * Annuity * [1 - 1 / (1 + r)n] / r
700,000 = (1 + 0.032) * Annuity * [1 - 1 / (1 + 0.032)10] / 0.032
700,000 = 1.032 * Annuity * [1 - 0.729799] / 0.032
700,000 = 1.032 * Annuity * 8.443794
Annuity = $80,330.55
Withdrawals will be $80,330.55
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