Let us assume you will be depositing an amount equal to $ A.
Interest rate = 12% compounded monthly
First of all convert it to effective rate of interest.
Interest rate = 12.68% per year
The Future value of investment can be determined as
F = A(F/A,12.68%,10)
=> F = A(1.126810 - 1)/0.1268
=> F = 18.13827A
You will be withdrawing $ 5000 every year starting from 11th year and last deposit will be end of year 25. Each withdrawal will be $ 1,000 greater than previous.
Calculate the present value of the withdrawal
The present value of the withdrawal at the end of year 10 is equal to $ 64,925.23. now equate future value and present value
A = $ 3,579.46
You are required to deposit $ 3,579.46 every year.
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