Uncle Fred recently died and left $320,000 to his 45-year-old favorite niece. She immediately spent $120,000 on a town home but decided to invest the balance for her retirement at age 65. What rate of return must she earn on her investment over the next 20 years to permit her to withdraw $75,000 at the end of each year through age 80 if her funds earn 10 percent annually during retirement? Use Appendix A and Appendix D to answer the question. Round your answer to the nearest whole number.
Appendix A
Appendix D
Amount available for investment = $320,000-120,000= $200,000
Amount required at the age of 65 = Present value of withdrawals
= 75000*PVAF(10%, 15 years)
= 75,000*7.606
= $570,450
Let the interest rate required to be earned is x
200,000*FVF(x%, 20 years) = 570,450
FVF(x%, 20 years) = 2.85225
Using Future value table, x = 5% (nearest whole number)
Hence, interest rate required = 5%
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