Question

What lump sum of money must be deposited into a bank account at the present time so that $600 per month can be withdrawn for five years, with the first withdrawal scheduled for six years from today? The interest rate is 1/4% per month (Hint: Monthly withdrawals begin at the end of the month 72.) The lump sum of money should be s (Round to the nearest dollar.)

Answer 1

Monthly withdrawal = $600
Monthly interest rate = 0.25%
Number of withdrawals = 60 (5 years)

First withdrawal is made 6 years from now

Present value = $600/1.0025^72 + $600/1.0025^73 + … + $600/1.0025^130 + $600/1.0025^131
Present value = $600 * (1/1.0025)^71 * (1 - (1/1.0025)^60) / 0.0025
Present value = $600 * 46.611437
Present value = $27,967

The lump sum of money should be $27,967