With a present value of $125,000, what is the size of the withdrawals that can be made at the end of each quarter for the next 10 years if money is worth 7.7%, compounded quarterly? (Round your answer to the nearest cent.)
The amount is computed as shown below:
Present value = Quarterly withdrawal x [ (1 – 1 / (1 + r)n) / r ]
r is computed as follows:
= 7.7% / 4 (Since the interest is compounded quarterly, hence divided by 4)
= 1.925%
n is computed as follows:
= 10 x 4 (Since the interest is compounded quarterly, hence multiplied by 4)
= 40
So, the amount will be as follows:
$ 125,000 = quarterly withdrawal x [ (1 - 1 / (1 + 0.01925)40 ) / 0.01925]
$ 125,000 = quarterly withdrawal x 27.7187746
quarterly withdrawal = $ 125,000 / 27.7187746
quarterly withdrawal = $ 4,509.58 Approximately
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